Temporary Contracts, Employees' Effort and Labour Productivity: The Evidence for Italy

This paper discusses a thesis indicated by recent empirical evidence from both European and non European countries; namely, if firms use temporary contracts as a tool to screen potential employees and provide workers with a "stepping stone" into permanent employment, then temporary employees have an incentive to make more effort than their permanent colleagues. After a theoretical discussion, the paper focuses on the econometrical analysis of this thesis in an institutional context, like the Italian one, in which firms are likely to use temporary contracts, mainly to adjust the workforce during the cycle. Data are drawn from ISFOL-Plus 2005 and from ECHP (1996-2001) for Italy. The paper concludes by pointing out that a higher effort does not necessary mean higher labour productivity, and suggests public policies to improve effort and productivity in labour markets characterised by an increase of temporary jobs.