Abstract
Informed by Radical Political Economics perspective, this paper investigates the impact of temporary agency workers (TAWs) on firm-level outcomes in the United Kingdom. Drawing on a comprehensive dataset from the Office for National Statistics’ Annual Business Survey—comprising firm-level observations of more than 44 thousand firms between 2011 and 2018—we employ fixed-effects regression models and Coarsened Exact Matching techniques to isolate the causal effects of TAW usage on key growth metrics. Our analysis reveals that an increased reliance on TAWs is significantly associated with a decline in the wage growth of permanent employees and a reduction in total factor productivity. Moreover, we document evidence of a non-linear relationship, whereby the flexibility benefits of TAWs at low levels are outweighed by adverse substitution effects at higher levels. These findings contribute to the existing literature by corroborating earlier studies and by providing robust evidence that the cost savings from employing TAWs are not fully reinvested in productivity-enhancing activities. The results have important implications for policymakers and business leaders, highlighting the need for balanced labour market reforms that support both short-term flexibility and long-term investments in human capital.