Stepping Stone and Risk

Conventional wisdom tells us that flexible employment schemes increase at the cost of so-called standard employment.

The labor market reforms 2002 to 2005 improved conditions for flexible employment which may have pushed the growth in this segment. Some say that the reforms have even led to a large-scale substitution of standard work with precarious non-standard work. Survey data show that there is indeed a rising share of flexible employment in comparison with total employment. But the share of standard employment relative to the working-age population remains stable. Moreover, on the individual level flexible employment contracts often serve as a stepping stone for workers into permanent, dependent full-time work and for the unemployed or inactive back into the labor market. They are, therefore particularly beneficial for low-productivity workers. Because their share among workers with flexible jobs is above average, the mean wage is lower and the poverty rate higher than that of workers in permanent full-time jobs. Nevertheless, even controlling for productivity, workers in flexible employment face wage deductions of 5 to 17 percent, possibly due to implicit contracts and/or a segmented labor market. Thus, flexible jobs bear a risk of being precarious, but remain an important employment opportunity for low-skilled workers.