Global economic crisis may force more short term contracts

The global financial crisis will force companies to offer short-term contracts rather than permanent jobs to new employees, according to academics.

Vicente Cuñat, a finance lecturer at the London School of Economics, has warned that firms will be tempted to hire less permanent staff during a downturn and more fixed-term contractors, which will allow them to save money in the short term and dispose of them more easily when they need to.

Speaking ahead of the launch of his research paper, Financing constraints and fixed-term Employment Contracts, Cuñat said: “Financing constraints tilt the balance towards a higher use of fixed-term contracts.”

He added: “At the beginning of a downturn firms unable to access external finance reduce employment much faster than financially unconstrained firms, both because they are forced to cut wages to avoid insolvency, and because they employ a higher fraction of fixed term workers who can be dismissed without cost.”

However, a study of recruitment agencies last month revealed that half felt the upcoming Agency Workers Directive would add 10% to the cost of filling a temporary vacancy.

The Agency Workers Directive was passed by the European Parliament in October – giving temporary workers in the UK equal rights to permanent staff after 12 weeks with an employer.

But a survey of 300 recruiters by industry body the Recruitment and Employment Confederation (REC) found 48% thought it would bump up the cost of temps by a tenth.

Kevin Green, chief executive of the REC said: “There are some legitimate concerns over how [the Directive] will be implemented in practice and how it will affect the use of agency workers in the long term.”

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