Temporary Contracts and Monopsony Power in the UK Labour Market

This paper addresses the issue of the presence and the extent of equalizing differences between temporary and permanent workers. The assumption of perfect competition in the labour market is directly questioned and a simple duopsonistic model is developed with the aim of capturing the main sources of differentiation among workers. The empirical analysis, based on several waves of the UK Labour Force Data, tends to confirm several of the hypotheses suggested by the model and emphasizes how in the short run workers who have experienced a change in their job status can expect a career trajectory in line with the theory on compensating differentials. In particular, shifts from temporary to permanent contracts tend to relate to a reduction in wage and a simultaneous increase in travel-to-work distance, while the wage dynamic related to the workers shifting from a temporary contract to another temporary position appears to be directly linked to individual characteristics.