Employment Intermediaries: A Model of Firm Incentives

This paper introduces a micro-simulation of job-worker matching with intermediaries (i.e., temp agencies). While many suggest that firms hire workers through intermediaries to save money on compensation, this paper finds that in a world of limited information and geographically limited job search, intermediaries' human resources ability could be a strong enough incentive, independent of compensation. The study also has some auxiliary findings showing that traditional fee structures encourage firms to use intermediaries for low-skill hires and that firms are more likely to use intermediaries when there is more worker heterogeneity. In the empirical analysis, it becomes clear that studies' estimates of indirect employment in the United States are inconsistent, partly because individuals are uncertain of their contractual status and their employer.