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Department of Economics, UmeŚ University UmeŚ Economic Studies, Department of Economics, UmeŚ University

No 896:
The Misaligned Incentives of Temporary Work Agencies and their Client Firms

Morgan Westťus () and Tomas Raattamaa ()

Abstract: This paper adds to the theoretical literature on the incentives of Temporary Work Agencies (TWAs). Using a principal-agent model with hidden action to analyse two main types of contracts between a TWA and a Client Firm (CF), the TWA is shown to potentially act against the best interest of the CF when helping to fill a vacant position. The results also suggest that the adverse effect of the incentive misalignment is larger when workers are leased rather than hired by the CF. However, this effect could potentially be offset by introducing a sufficient level of competition among TWAs.

Keywords: Temporary work agency; client firm; incentives; matching; contracts; (follow links to similar papers)

JEL-Codes: J41; J44; J64; (follow links to similar papers)

15 pages, November 12, 2014

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