Temporary work agencies and equilibrium unemployment. CES Germany & Europe Working Paper no. 02.6, 2002

A striking feature of OECD labor markets in the 1990s has been the very rapid increase of temporary agency work. We augment the equilibrium unemployment model as developed by Pissarides and Mortensen with temporary work agencies in order to focus on their role as matching intermediaries and to examine the aggregate impact on employment. Our model implies that the improvement in the matching efficiency of agencies led to the emergence and growth of temporary agency work. We also show that temporary agency work does not necessarily crowd out other jobs. In this paper we extend an equilibrium unemployment model, as in Diamond (1981), Mortensen (1982), and Pissarides (1990) with temporary agency work in order to focus on its role as a matching intermediary and its aggregate impact on employment