Temporary employment contracts and household income

Abstract

It is widely accepted that temporary jobs tend to be associated with low pay which, in turn, will have negative consequences for household income. Evidence in support of such claims, however, is relatively thin. This study seeks to ill this void. In particular, it is both the first study to examine the consequences of temporary employment for workers’ household income within a multivariate framework, and the first to quantify the relative importance of the different channels through which temporary employment affects income. Regression and decomposition analyses are applied to longitudinal survey data from Australia, a country where the incidence of temporary forms of employment, and especially casual work, is very high by Western standards. Contrary to expectations, employment on a fixed-term contract is associated with significantly higher household incomes than permanent workers. In contrast, workers in casual and temporary agency employment are indeed found to live in households with lower average incomes than permanent workers. The estimated size of the income penalty is about 11% for temporary agency workers and 20% for casual employees. These differentials, however, are not primarily the result of lower wages, but instead are mainly due to the fewer hours worked by these groups. In the case of casual workers, lower annual individual earnings are partly offset by higher incomes of other household members. This compensatory effect, while not small, is still insufficient in size to fully close the income gap to permanent workers.