Buffer-stock needs drive 65 percent of Italian temporary hiring
Roughly 65 percent of Italian firms use fixed-term contracts as a buffer stock against revenue volatility, according to research by the Bank of Italy. Screening accounts for 25 percent of temporary employment, while seasonal motives represent only 10 percent of firms.
Duration signals firm hiring intent
Analyzing matched employer-employee data for Italy from 2013 to 2017, the authors track systematic users generating 89 percent of temporary employment volume.
Machine-learning clustering identifies three distinct motives for fixed-term contracts.
About 65 percent of firms deploy temporary contracts primarily as a buffer stock to manage revenue volatility and lower productivity.
Screening accounts for 25 percent of firms, where initial contract durations of at least six months strongly predict conversion into open-ended roles.
Seasonal contracts comprise only 10 percent of firm utilization, concentrated heavily in tourism and accommodation.
Initial contract duration serves as an ex-ante indicator of firm intentions, with conversion propensity flattening after six months.
Productivity and volatility shape employment buffers
The empirical patterns support theoretical models linking contract choice to demand uncertainty and firm productivity.
More productive firms offer longer initial contracts and achieve conversion rates reaching 38 percent.
Conversely, less productive firms facing unpredictable revenue swings rely on short, non-seasonal contracts to preserve termination flexibility.
High human capital requirements significantly reduce worker replacement rates, encouraging contract renewals over worker turnover.
Although temporary positions accounted for 60 percent of job flows in Italy, aggregate worker share remained near 11 percent.
Flexibility comes at a cost
The study shows temporary hiring in Italy stems mostly from firm vulnerability rather than candidate screening.
Taxing short contracts risks stifling job creation among low-productivity firms needing labor flexibility.
Reforms must balance reducing employment churn against preventing hiring losses in volatile sectors.