We use data from the World Bank Enterprise Survey of private
sector firms in developing countries to investigate the determinants of
firms’ use of temporary labour. Our main findings suggest that nearly all of
the micro-level hypotheses for firm use of temporary labour identified by
previous literature as relevant for developed countries – flexibility needs,
cost saving strategies, and technological adjustments – are relevant in
developing countries. The relevance of any particular micro-level
determinant mainly varies across sectors of firm’s activity, with significant
differences between manufacturing and services; a country’s level of
development is not relevant. On the macro level, it is the national
regulations governing the use of fixed-term contracts, and notably whether
fixed-term contracts are authorized for permanent tasks, that play a key role
in determining the firm-use of temporary labour. While we do not find
evidence that the overall level of employment protection for regular
workers affects firms’ decisions to use temporary labour, the degree of
protection afforded by substantive grounds for dismissals is relevant.
Employment protection is most relevant in upper-middle and high-income
countries, but not in lower- or lower-income countries, irrespective of the
sector of firm’s activity.