31
In summary, we have sketched a simple model that predicts that a general decline in the profitability
of hiring labour causes a rise in the share of temporary workers. A decline in profitability can have many
causes, including a fall in productivity or the relative price of output as well as a rise in real wages. The
model is highly simplified but the basic forces at work are likely to survive in more elaborate models. For
example, if wages are made endogenous the results hold so long as wages do not fully adjust to changes
in productivity. Although such adjustments are plausible outcomes in the long run, they are unlikely to
hold in the short run.
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