Does the stepping‐stone effect of temporary agency employment vary over the business cycle?

Abstract We examine the cyclicality of the stepping‐stone effect of temporary agency work in Germany across three business cycles using administrative data and a timing‐of‐events model. We estimate in‐ and post‐treatment effects and their response to the unemployment rate. We find a strong lock‐in effect of agency employment, particularly in tight labor markets, suggesting that firms rarely use agency work for screening. The positive post‐treatment effect is larger in downturns, indicating that workers activate the networks built during agency jobs. The matching quality improves for those transitioning directly into regular employment, with greater gains in upturns.