This study empirically analyses how the use of fixed-term employment affects labour productivity of establishments. To this end, a large data set of German manufacturing establishments and various panel data models are used in order to test the expected non-linear relationship between labour productivity and the use of fixed-term employees. The analysis takes into account the possible distortions that may result from selection into the use of fixed-term employment. The empirical results provide no evidence for the expected inverse U-shaped relationship between fixed-term employment and labour productivity. Testing for a linear relationship leads to mostly negative coefficients, which are only significant in a few specifications. Hence our results indicate that there is no significant relationship between the usage of fixed-term contracts and establishments labour productivity.