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This study analyses the relationship between flexible employment, productivity and wages, along their distributions. We use an original firm-level dataset, which combines information on workplace characteristics from  Rilevazione su Imprese e Lavoro  (RIL) with the  Analisi Informatizzata delle Aziende Italiane  (AIDA) balance sheet information for the universe of Italian non-agriculture/financial corporations. We employ different quantile regression models to panel data and find, first, that use of temporary contracts is associated to a reduction in labour productivity and wages at each point in the corresponding distribution; and second, that the negative relationship between labour productivity and wages decreases in magnitude along the quantiles of the productivity and wage distributions, suggesting that low-productive/low-wage firms use temporary employment to permanently staff positions and to compress labour costs.

Heterogeneity matters: temporary employment, productivity and wages in Italian firms