The Impact of a Demand Shock on the Employment of Temporary Agency Workers: Evidence from Japan during the global financial crisis

This study investigates the effect of a negative demand shock on the composition of the type of workers at firms, focusing on the change in the share of temporary agency in all workers. To clearly identify the causal link between the demand a firm faces and the composition of its workforce in terms of the type of workers and rule out any reverse causation, we use the 2007-2009 global financial crisis as a natural experiment, with the drop in demand experienced by exporting firms in Japan serving as an exogenous demand shock. We find that firms with a higher export ratio, a higher share of temporary agency workers, and a larger increase in the share of temporary agency worker ratio prior to the crisis decreased the share of temporary agency workers more than other firms in response to the demand shock. We also find that firms with a higher liquid asset ratio and higher volatility in their sales decreased the share of temporary agency workers less than other firms during the crisis. These results suggest that temporary agency workers serve as a buffer against demand shocks.

This is the English version of the Japanese Discussion Paper (14-J-012) with some additional information and changes.