Do Temporary Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from “Work First”

David H. AutorMIT and NBER

Susan N. HousemanUpjohn Institute for Employment Research

Presentation prepared for World Congress on National Accounts and Economic Performance Measures for Nations

May 14, 2008 – Session 3B

Temporary Help Agency Employment: Growing Rapidly Worldwide

In United States:

o 2.5% to 3% of U.S. jobs.

o Grew at 11% rate 1972 to 2000.

o Accounted for 10% of net U.S. job creation 1990—2000.

o Accounted for 31% of net U.S. job destruction 2000—2002.

In OECDo Many countries

deregulated Temp Help over last 15 years.

o Since 1992, Temp Help: Grew 5-fold in Denmark,

Spain, Italy, Sweden. Grew 4-fold in Austria.

o Accounts for 4+% of daily employment in UK and Netherlands.

o Much discussion in OECD of: “Temporary agency work as a new source of labor market flexibility.”

High Incidence of Temporary Agency Employment among Low-Skilled Job Entrants

Disproportionate fraction of temporary agency jobs: o In low-skilled, entry-level occupations.o Held by minorities.o Held by those with no post-high-school

education. Strikingly high incidence among welfare

population:o 21% of jobs obtained by Work First participants

in our Michigan study sample in Temporary Help sector.

o Data from Wisconsin, Missouri, Washington State, Georgia: 15% - 40% of employed welfare recipients are in temp help sector.

Does Temporary Agency Employment Help Low-Skilled Workers Advance in the Labor Market?

Augmenting job search: ‘Stepping stone’o Intrinsically short-term jobs

o Temporary help jobs connect low-skilled workers with potential

employers, build skills, and gain work experience.

Prolonging instability: ‘Stumbling blocks’o Offer few chances for advancement or skills development.

o May crowd out productive job search, hamper long-term

advancement.

Both views could be true. Relevant policy question is:o Which effect predominates in low-wage/low-skilled labor

markets?

The difficulty of answering the causal questiono Hard to distinguish consequences of taking a given job type

from the factors that cause person to take that job initially,

e.g., skills, motivation, life circumstances.

Does Temporary Agency Employment Help Low-Skilled Workers Advance in the Labor Market?

U.S. and European: o U.S: Waldfogel and Ferber, 1998; Lane et al., 2003;

Heinrich, Mueser and Troske, 2005; Andersson, Holzer and Lane, 2005; Corcoran and Chen, 2005.

o European studies (at least 10): Ichino et al. 2005

Methods used in previous research: All non-experimentalo Regression adjustment, Matching estimators, Parametric

selection models, Fixed effects, Structural models, some Instrumental Variables models.

Results from prior research: Quite uniformo “Stepping stone” view of temp help jobs endorsed in

essentially every case.

o Two studies recommend use of temp help employment for welfare clients.

Outline

Our Study Designo Quasi-Experiment in Detroit’s Work First Programo Datao Estimation Framework

Main Resultso Effects of Temp Help Placement on Subsequent

Employment & Earningso Effects of Temp Help Placement on Subsequent

Employment & Earnings in Temp v. Direct-Hire Jobs Effects of Job Placement on Job Stability

o Effects on Working for Multiple Employerso Effects on Longest Job Spell and Longest Jobo Effects on Continuous Employment

Bad Jobs or Bad Contractors? Conclusions & Policy Implications

Study Design

Exploits natural variation among providers of job placement services for welfare and disadvantaged workers in propensity to place participants into temp agency jobs

Why does heterogeneity in job placement practices arise?o Uncertainty:

Heterogeneity among providers in beliefs about “what works”

o Low-information environment: Providers do not observe outcomes – subsequent

earnings, recidivism

Our Quasi-Experiment with Detroit Welfare Recipients

‘Work First’ approach—Emphasis on rapid placement into jobso Unemployed welfare recipients must search for job full timeo Few, if any, resources provided for training or counseling.o 1st week—Job search orientation. After that—job search full-time.

The policy quasi-experimento Detroit’s Work First program divided into geographic districts

(neighborhoods) – 12 districts served by 2 to 4 non-profit Work First contractors.

o New participants assigned to contractors in each district on a rotating basis Functionally equivalent to random assignment.

o Contractors provide similar (minimal) services using same program structures, ex ante identical clients.

Source of identifying variationo Large, persistent differences in types of jobs taken—temp help, direct-

hire, and no job—by clients assigned to different contractors in same districts.

Random assignment manipulates the probability that ex ante comparable Work First clients take different job types. Intention to treat design.

The Data: Work-First Case Records Linked to State UI Records

The sample:

o All participants entering Work First, 4th

quarter 1999 through 1st quarter 2003:

25,802 unique Work First participants;

38,689 Work First spells.

o Job placement outcomes during Work First

spells:

52.8% No job; 37.6% Direct Hire

placement; 9.6% Temp Help placement.

Estimation Framework

We estimate:

o Where outcomes are: Employment or earnings in

quarters 1- 8 following Work First Assignment (never

use contemporaneous quarter of placement).

o Di and Ti refer to job placement during the Work First

spell.

o Robust standard errors clustered on contractor

assignment year (83 clusters).

OLS Models:

o have no causal interpretation.

TOLS , DOLS

Y i jdt TT i DD i X i 0 d t d t i jdt

Estimation Framework continued

Instrumental Variables Models:

o We instrument with contractor by year dummies—instruments for job placements obtained during the Work First assignment.

o (Almost) equivalent to instrumenting with observed placement rates:

o IV model can be rewritten as:

where are contractor random effects, is participant

residual.

jt it

D i ,T i

P ijtT , P ijtD

Y ijdt TP jtT DP jtD d t d t jt ijdt

Outline

Our Study Designo Quasi-Experiment in Detroit’s Work First Programo Datao Estimation Framework

Main Resultso Effects of Temp Help Placement on Subsequent

Employment & Earningso Effects of Temp Help Placement on Subsequent

Employment & Earnings in Temp v. Direct-Hire Jobs Effects of Job Placement on Job Stability

o Effects on Working for Multiple Employerso Effects on Longest Job Spell and Longest Jobo Effects on Continuous Employment

Bad Jobs or Bad Contractors? Conclusions & Policy Implications

IV Estimates of the Effect of Work First Job Placements on Subsequent Earnings and Quarters of Employment

Quarter 1 Quarters 2 - 4 Quarters 5-8 Quarters 1-8

(2) (4) (6) (8)

A. Earnings

Direct Hire Job

722*(161)

1,731*(454)

1,720*(621)

4,173*(1,175)

Temp Agency Job

420*(206)

-729~(386)

-882(583)

-1,190(999)

H0:Temp=Direct

0.20 0.00 0.01 0.00

B. Quarters Employed

Direct Hire Job

0.35*(0.07)

0.59*(0.12)

0.45*(0.17)

1.38*(0.34)

Temp Agency Job

0.15~(0.08)

-0.02(0.09)

-0.21(0.15)

-0.09(0.23)

H0:Temp=Direct

0.09 0.00 0.02 0.00

-120

0-8

00-4

000

400

800

1200

1 2 3 4 5 6 7 8Quarters since Work First Assignment

95% CI Direct Hire

95% CI Temporary Help

Qua

rterly

Ear

ning

sA. Quarterly Earnings

-.3

-.2

-.1

0.1

.2.3

.4.5

.6

1 2 3 4 5 6 7 8Quarters since Work First Assignment

95% CI Direct Hire

95% CI Temporary Help

Em

ploy

men

t Pro

babi

lity

B. Employment Probability

IV Estimates of the Effect of Work First Job Placements on Earnings and Employment by Sector: Direct-Hire and Temporary Help Jobs

Direct-Hire Jobs Temp-Help Jobs

Q 1-4(3)

Q 5-8(4)

Q 1-4(5)

Q 5-8(6)

A. Earnings

Direct Hire Job 2,121*(457)

1,711*(625)

362(290)

-28(145)

Temp Agency Job -1,470*(417)

-593(652)

1,042*(318)

-226(182)

H0: Temp=Direct 0.00 0.03 0.03 0.33

B. Quarters Employed

Direct Hire Job 0.97*(0.13)

0.40*(0.16)

-0.02(0.11)

-0.03(0.05)

Temp Agency Job -0.38*(0.11)

0.01(0.18)

0.49*(0.10)

-0.09(0.06)

Constant 1.25(0.04)

1.41(0.05)

0.31(0.04)

0.28(0.02)

H0: Temp=Direct 0.00 0.18 0.00 0.03

Outline

Our Study Designo Quasi-Experiment in Detroit’s Work First Programo Datao Estimation Framework

Main Resultso Effects of Temp Help Placement on Subsequent

Employment & Earningso Effects of Temp Help Placement on Subsequent

Employment & Earnings in Temp v. Direct-Hire Jobs Effects of Job Placement on Job Stability

o Effects on Working for Multiple Employerso Effects on Longest Job Spell and Longest Jobo Effects on Continuous Employment

Bad Jobs or Bad Contractors? Conclusions & Policy Implications

-.3

-.2

-.1

0.1

.2.3

.4

0 1 2 3 4 5 6 7 8Quarters since Work First Assignment

95% CI 1 employer

95% CI 2+ employers

Pro

babi

lity

A. Direct-Hire Placements

-.3

-.2

-.1

0.1

.2.3

.4

0 1 2 3 4 5 6 7 8Quarters since Work First Assignment

95% CI 1 employer

95% CI 2+ employers

Pro

babi

lity

B. Temporary-Help Placements

IV Estimates of the Effect of Work First Job Placements on Quarters Employed and Earnings in Longest Continuous Work Spell and Longest

Continuous Spell with a Single Employer during Eight Quarters Following Work First Assignment

All(1)

LongestSpell(2)

LongestJob(3)

All(1)

LongestSpell(2)

LongestJob(3)

A. Earnings B. Quarters Employed

Direct Hire Job

4,173*(1,175

)

3,885*(1,055)

3,107*(1,001)

1.38*(0.34)

1.07*(0.27)

0.92*(0.29)

Temp Agency Job

-1,190(999)

-1,509(966)

-1,966*(832)

-0.09(0.23)

-0.09(0.21)

-0.22(0.20)

Constant 7,487(426)

6,984(378)

5,734(347)

3.27(0.12)

2.88(0.10)

2.28(0.10)

Ho: Temp = Direct

0.00 0.00 0.00 0.00 0.00 0.01

0.1

.2.3

.4.5

1 2 3 4 5 6 7 8

A. Baseline: Participants with No Job Placement

-.2

-.1

0.1

.2.3

.4.5

1 2 3 4 5 6 7 8Quarters

95% CI Direct-Hire

95% CI Temporary-Help

B. Causal Effect on Survival Probability

Outline

Our Study Designo Quasi-Experiment in Detroit’s Work First Programo Datao Estimation Framework

Main Resultso Effects of Temp Help Placement on Subsequent

Employment & Earningso Effects of Temp Help Placement on Subsequent

Employment & Earnings in Temp v. Direct-Hire Jobs Effects of Job Placement on Job Stability

o Effects on Working for Multiple Employerso Effects on Longest Job Spell and Longest Jobo Effects on Continuous Employment

Bad Jobs or Bad Contractors? Conclusions & Policy Implications

Bad Jobs or Bad Contractors?

IV model attributes differences in participant outcomes to differences in contractor placement rates.

Key assumption:

o Temp and direct-hire placement rates not systematically correlated with other contractor quality differences that affect outcomes:

Alternative scenario—A threat to validityo Temporary help jobs have same causal effect on earnings as direct-

hire jobs.

o But ‘low quality’ contractors—those who generally provide poor services—place a disproportionate share of participants in temporary help jobs.

o If so, our 2SLS estimates will misattribute the effect of receiving a bad contractor assignment to the effect of obtaining a temporary help job.

with E jt P jtT E jt P jtD 0.

Y ijdt TP jtT DP jtD d t d t jt ijdt

Specification Test

Plausibility:

o All other key services—e.g. transportation, child care, follow-up—standardized across contractors or provided outside Work First program

o Contractors do little other than job placement Formal test: Recall reduced form of main estimating

equation:

Specification test that placement rates a ‘sufficient statistic’ for entire effect of contractors on participant outcomes.1. Estimate model with and save residuals2. Re-estimate model, replacing w/contractor-by-year

dummies.3. F-test for added explanatory power of these 59 dummies4. Accept null hypothesis at 42 percent level for cumulative 8

quarter earnings, 15 percent level for 8 quarter employment

Y ijdt TP jtT DP jtD d t d t jt ijdt

P ijtT , P ijtD

P ijtT , P ijtD

Conclusions Direct-hire job placements improve subsequent

employment outcomes over 1 to 2 yearso ↑ earnings $2K to $4Ko Raise subsequent job stability: raise probability of

single employer, earnings & quarters worked in longest job, continuous employment over 8 quarters

Temp agency job placements have no lasting positive effect on employment outcomeso Only increase earnings in temp jobs in short-term—

crowd out direct-hire employmento May reduce subsequent job stability: increase

probability job switching, reduce earnings longest job Policy implications

o “Work First” approach justified by large-scale random assignment experiments showing job placement services as effective at improving subsequent outcomes as more costly strategies

o Type of job placement matters—benefits derive entirely from direct-hire placements

Conclusions

Reconciling our findings with those of previous studieso Our results pertain to “marginal placements” – most

relevant for policyo Treatment effects of our study might differ from

causal parameters identified in other studieso Or prior studies unable to control for selection

biases.