Fixed-term employment and job satisfaction : evidence from individual-level data accounting for selectivity bias

The present paper examines the relationship between fixed-term employment and job satisfaction using individual-level data from the German Socio Economic Panel (GSOEP). According to theoretical expectations, fixed-term employment should be associated with a relative low level of job satisfaction, and the majority of empirical investigations is actually in line with this prediction. However, none of these studies accounts for the fact that a worker's choice of whether or not to accept a temporary working contract might substantially be driven by individual characteristics and would then be endogenous. In contrast to prior studies, our preferred model specification explicitly accounts for a potential selectivity bias. The estimation results of our treatment effects model indicate a positive connection between fixed-term employment and job satisfaction. Hence, we conclude that job satisfaction on average is not negatively affected by the pure duration of an employment contract, but by individual characteristics, job-related factors, and working conditions. Nevertheless, we would not recommend firms to replace permanent by fixed-term workers as the latter are more satisfied with their jobs associated with higher motivation and productivity levels. Instead, firms are encouraged to improve working conditions, especially for better educated and more tenured workers.