Temporary Workers, Educational Mismatch and Firm Productivity

The objective of this paper is to provide new evidence on the effect of temporary contracts on firms’ productivity through their impact on skill mismatch using a matched worker flows employer-employee dataset. To achieve this goal, we regress TFP on the fraction of educationally mismatched temporary workers and a set of additional controls in a dynamic panel model at firm-year level controlling for industry and time effects. We also take advantage of institutional labour market reforms occurred in Italy in 2001 and 2003 to study how the mismatch among temporary workers and its impact on TFP have changed. We find that skill mismatch has increased among temporary workers (compared to permanent workers); the reforms were able to mitigate this effect, but were not enough to overcome the trend. The impact on firms’ productivity, positive for one reform and negative for the other, were overall quite small.