This paper investigates whether temporary agency employment complements or substitutes for regular employment. We use unique administrative data that provide information on the overall size of the German market for temporary agency workers for the period 1991–2010. To take into account the interaction between the two employment forms, we identify a SVAR model with correlated innovations by volatility regimes. We find that a positive shock to temporary agency employment increases overall employment, but also leads to substitution for regular jobs.
