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Paying Outsourced Labor: Direct Evidence from Linked Temp Agency-Worker-Client Data

Author

Listed:
  • Andres Drenik

    (UT Austin)

  • Simon Jager

    (MIT and IZA)

  • Pascuel Plotkin

    (UBC)

  • Benjamin Schoefer

    (UC Berkeley)

Abstract

We estimate how much firms differentiate pay premia between regular and outsourced workers in temp agency work arrangements. We leverage unique Argentinian administrative data that feature links between user firms (the workplaces where temp workers perform their labor) and temp agencies (their formal employers). We estimate that a high-wage user firm that pays a regular worker a 10% premium pays a temp worker on average only a 4.9% premium, compared to what these workers would earn in a low-wage user firm in their respective work arrangements. This 49% pass-through constitutes the midpoint between the benchmarks for insiders (one) and the competitive spot-labor market (zero).

Suggested Citation

  • Andres Drenik & Simon Jager & Pascuel Plotkin & Benjamin Schoefer, 2023. "Paying Outsourced Labor: Direct Evidence from Linked Temp Agency-Worker-Client Data," The Review of Economics and Statistics, MIT Press, vol. 105(1), pages 206-216, January.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:1:p:206-216
    DOI: 10.1162/rest_a_01037
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    Cited by:

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    2. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Amior, Michael & Stuhler, Jan, 2023. "Immigration, Monopsony and the Distribution of Firm Pay," IZA Discussion Papers 16692, Institute of Labor Economics (IZA).
    4. Pisch, Frank & Berlingieri, Giuseppe, 2022. "Managing Export Complexity: The Role of Service Outsourcing," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 135680, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    5. Carrasco Perea, Raquel & Jerez García-Vaquero, María Belén, 2024. "Temporary agency work and labor misallocation," UC3M Working papers. Economics 44503, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Simonsen, Marianne & Skipper, Lars & Skipper, Niels & Thingholm, Peter Rønø, 2021. "Discontinuity in care: Practice closures among primary care providers and patient health care utilization," Journal of Health Economics, Elsevier, vol. 80(C).
    7. Koning, Pierre & Muller, Paul & Prudon, Roger, 2022. "Why Do Temporary Workers Have Higher Disability Insurance Risks Than Permanent Workers?," IZA Discussion Papers 15173, Institute of Labor Economics (IZA).
    8. Adrien Bilal & Hugo Lhuillier, 2021. "Outsourcing, Inequality and Aggregate Output," Working Papers 2021-05, Becker Friedman Institute for Research In Economics.
    9. Benjamin Schoefer & Oren Ziv, 2024. "Productivity, Place, and Plants," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1167-1186, September.
    10. Wouter Zwysen, 2024. "Working apart: Domestic outsourcing in Europe," European Journal of Industrial Relations, , vol. 30(2), pages 221-241, June.
    11. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2880-2942.
    12. Pilar Beneito & Maria Garcia-Vega & Oscar Vicente-Chirivella & Guillaume Wilemme, 2024. "Robots and firms’ labour search: The role of temporary work agencies," Discussion Papers 2024-02, University of Nottingham, GEP.
    13. Mark Kattenberg & Bas Scheer & Jurre Thiel, 2023. "Causal forests with fixed effects for treatment effect heterogeneity in difference-in-differences," CPB Discussion Paper 452, CPB Netherlands Bureau for Economic Policy Analysis.
    14. FUKAI Taiyo & KAWAGUCHI Daiji & KONDO Ayako & YOKOYAMA Izumi, 2023. "How Do Firms Attain Internal and External Flexibility of Employment?," Discussion papers 23089, Research Institute of Economy, Trade and Industry (RIETI).
    15. Carreño, José Gabo & Uras, Burak, 2024. "Macro welfare effects of flexible labor contracts," European Economic Review, Elsevier, vol. 161(C).

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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