TEMPORARY AGENCY WORK IN THE LIGHT OF THE TRANSACTION COST THEORY

Abstract

In the paper’s introduction the role of institution in the economic theory is shortly examined, then it concentrates on the contract of employment as a labour market institution. For the last two or three decades we can observe the erosion of traditional relations between an employer and an employee and the expansion of, so called, atypical employment arrangements. Temporary agency work belongs to this category. Using transaction cost theory instead of neo-classical approach to the theory of the firm it is possible to explain to some extend emergence of that form of employment. Transaction cost theory takes into account the assertion that the firm exists because of its capacity to economize on the costs of market-oriented production. The firm itself emerges as the most superior economic device for the reduction of market costs. The temporary agency work allows the firm to reduce some transaction cost connected with hiring labour, particularly seeking and bargaining cost, information costs and other outlays arisen from asymmetric and imperfect information on the labour market. The theory makes clear some of the enterprise’s and the employees’ behavior like investition in human capital, loyalty or motivation. The conclusion derived from the research is that in situations where a purchaser may require a particular, firm-specific investment of a supplier the work arrangements in form of fixed term-contracts may be not as efficient as the long-term contract are. If  the needed staff can be obtained quickly and without effort on the market, it is reasonable not to keep it within a firm.