Do Temporary Workers Receive Risk Premiums? Assessing the Wage Effects of Fixed–term Contracts in West Germany by a Matching Estimator Compared with Parametric Approaches

Abstract

The wage effects of fixed–term contracts (FTCs) are analysed with the German Socio–Economic Panel (GSOEP) for West Germany. Taking selection on observables into account results in an estimated wage effect of −6 percent up to −10 percent. Controlling additionally for selection on unobservables leads to wage effects of −23 percent, which may be explained by self–selection of workers. The results also highlight the importance of asymmetric information as an explanation for the incentive for employers as well as workers to enter FTCs.