Non-Standard Contracts Among Young People

Written by: Kryštof Jehlička and Marten Wesebaum
Edited by: Stefana Vizman

At issue is the employment quality that young people face, labour market integration, and the overall welfare of young workers today, as well as the implications this has on their future job prospects and quality of life (Eberlain et al., 2024). Young people are the future backbone of the economy; the impact on this demographic subsection is therefore critical. Precarious employment and its associated economic insecurities constitute a substantial barrier to early upward mobility, increasing the risk of returning to unemployment (Bobek et al., 2017). This disproportionately affects those who cannot rely on parental financial support, such as those in lower-income households (Kalleberg, 2017). Moreover, research findings indicate that non-standard employment contracts correlate with subpar working conditions, limited training opportunities, and inferior career prospects compared to permanent contracts with fixed working hours (Burri et al., 2018). As demonstrated by the recent COVID-19 pandemic, temporary workers are the first to be made redundant during economic downturns (Eurostat, 2023a), further signifying the precarity of being employed under such a contract. 

Young people are among those demographic groups most overrepresented in non-standard employment contracts, frequently involuntarily (Green & Livanos, 2017). Today, there are some 6 million young people in the EU employed under temporary work contracts, translating to around 25% of all working-age people under such a contract (Eurostat, 2023b).  In the leading countries, there is a substantial disparity between the age categories of the entire working-age population (15-64) and the young people category. Hence, the purpose of this policy brief is to find measures that reduce the high amount of temporary contracts among young people. The actions recommended are drawn from an analytical comparison of two EU countries.

Putting temporary contracts to the test

Despite these discerning insights, some research suggests (McGinnity et al., 2005), that non-standard contracts persist as influential components in the transition from education to employment. Temporary contracts lower the commitment of employers, who are subsequently more willing to employ a higher number of young people. Nonetheless, there persists a debate within scholarly discourse regarding the efficacy of fixed-term contracts. While proponents argue that temporary contracts serve as important transitional mechanisms easing the transition into the workforce and ultimately enabling the attainment of permanent employment (Eberlein et al., 2024), opponents of these types of contracts contend that they hinder seamless integration into the labour market, perpetuating cycles of precarious employment and joblessness (Rouvroye et al., 2022), which constitute serious ramifications for future employment development. 

To this end, the EU-funded DYNANSE project provides a useful overview of the impact of non-standard forms of employment on career and economic trajectories and highlights existing concerns regarding the topic throughout the EU (CORDIS, 2023).  There is substantial evidence of the negative impacts of temporary employment as a transition from education to employment, particularly during periods of higher unemployment (Filomena & Picchio, 2021), while Eberlain et al. (2024) conclude that fixed-term contracts in certain contexts promote upward mobility. However, those who generally begin their career under a temporary contract or on a zero-hours basis face an increased risk of entering ‘entrapment careers’ (Eberlain et al., 2024, p.12), thus remaining in low-paid and precarious jobs for longer than those who do not start their careers in this way. The authors warn that this is a strong contributing factor to more frequent job changes (‘labour market fluidity’) as well as an exacerbation of socioeconomic inequalities. While some studies find that frequent job changes can contribute to human capital accumulation (Eberlain et al., 2024), the effect of high labour market fluidity amongst young people is ambiguous. More job ‘experience’ does not necessarily equate to greater skill, as often it is unattractive in the long-term for employers to ‘invest resources’ into temporary employees, exacerbating potential career entrapment.

Employers’ point of view

Despite potential detrimental effects on young people’s future permanent employment opportunities, from an employer’s standpoint, the utilization of temporary contracts offers several strategic advantages in workforce management. Employees under temporary contracts often demonstrate a 60% higher willingness to engage in unpaid overtime, providing the company with increased flexibility in meeting demands without incurring additional costs (Matsaganis et al., 2013). Temporary contracts also allow employers to thoroughly assess new hirees before committing to permanent positions, minimizing the risk of mismatched skill sets or cultural fit (Engellandt & Riphahn, June 2005).

Furthermore, employers appreciate the financial benefits associated with temporary contracts. In the event of dismissal, permanent contracts typically entail higher costs, making temporary arrangements a more cost-effective solution. This cost-conscious approach becomes especially relevant during economic crises when businesses need to cut expenses (von Rohland, 2012). Additionally, the prevalence of temporary contracts can be attributed to the lack of representation of young workers’ interests in collective agreements, enabling employers to navigate labour relations with greater autonomy (Berlingieri et al., n.d.).

Comparing Spain and Austria

In Spain, past research has established that temporary employment contracts are unsuccessful in providing a path to permanent jobs for young workers who entered the Spanish labour market in the pre-crisis period (García-Pérez et al., 2019). Today, nearly 75% of all Spanish people under the age of 25 are employed in temporary work (Felgueroso et al., 2018), for various reasons, including high seasonal unemployment or a poor regional economic situation. On the other hand, Austria has one of the lowest youth unemployment rates in Europe, and its young employees have the lowest incidence rate of people with an involuntary employment contract. Among 15-29-year-olds, only 0.5% had a fixed-term contract with their employer. In this section, we explore the impacts of different employment protection legislations (EPLs), apprenticeship schemes and socioeconomic situations.

In the following section, we compare Spain, which has a relatively high proportion of non-standard employment contracts among young people, with Austria, which sits on the other end of the spectrum; it boasts a very low rate of temporary contracts among young employees. 

While Austrian law enables companies to utilise temporary contracts, it prohibits so-called ‘chain contracts’ for young workers (Pichler, 2024). The term ‘chain contracts’ describes the phenomenon of employers renewing temporary contracts with another temporary contract after the initial one expires. Prohibiting these forces companies to decide whether they will offer the worker a fixed-term contract or recruit and train a replacement worker for the position, which requires allocating substantially more financial expenditure to human resource capacities for the enterprise (European Commission, 2023).

Ordinary dismissals in Austria are simple to conduct unless the employee enjoys a certain dismissal protection. A standard dismissal does not require a justification, making it trivial to dismiss a worker. Conversely, in Spain, EPL is considered overwhelmingly strict, relegating young people to temporary work contracts as the dismissal of a worker with a standard contract comes with many barriers, leading to a high cost for employers (Kalleberg, 2017). Austrian legislation obliges companies to inform employees who are affected by dismissals in advance to provide enough time for the employee to look for new job opportunities. The minimum period is six weeks in Austria, while in Spain it is merely 15 days (CMS Legal Services, 2022). Individuals residing in Spain who face dismissals often find themselves with a limited timeframe to secure another job. People who have been made redundant in Austria therefore have a longer period to find a new job, giving them more time to scan the labour market and look for the best available job opportunity.

Another crucial aspect when it comes to non-standard contracts among young people is the method of entering the job market compared to Spain and Austria. Both countries have established apprenticeship systems, which are specifically designed to facilitate entry into the labour market. Comparing  Spain and Austria in terms of the unemployment rate among young professionals demonstrates a substantial gap. In the age group of 15-24, Spain had an unemployment rate of 30% compared to Austria, where it was only 9% (OECD, 2023). This contrasting imbalance suggests the Spanish apprenticeship program’s inability to provide young people with a stable job – researchers found that the apprenticeship system does not exhibit a sufficient number of positions since there is a high demand (Wolter & Mühlemann, 2015). Also for small Spanish companies, it is currently not profitable (Wolter & Mühlemann, 2015). The weakness of Spain’s apprenticeship program does not merely facilitate unemployment but enhances the probability of young professionals accepting fixed-term employment contracts. This is contrasted by Austria’s implementation of an ‘apprenticeship guarantee’ for students under the age of 25 who cannot find an apprenticeship position, meaning that those students will receive an offer from a governmental institution (Wieland, 2020).

An additional factor that might facilitate temporary contracts among young people is the overall condition of the country’s economy. Comparing the GDP of these countries reveals that Austria boasts a more robust economy relative to its population. As of 2022, the GDP per capita for Austria stands at 55,867€, while Spain’s is at 40,223€ (Eurostat, 2023c). While beneficial for comparison reasons, it is important to note that the GDP per capita indicator is not necessarily a representative depiction of the economy and the quality of life experienced by its workers.

However, following this approach sources mention that unstable economies do not grant sufficient securities for companies to hire people with a permanent contract. Firms that need to react immediately to changes within the economy might therefore prefer workers with temporary contracts, because of the simplicity of dismissing them. (Matsaganis et al., 2013)

Towards a fairer future

Before any action is taken, any changes must be documented and evaluated in terms of data on non-standard contracts for young people, as this is the only way to be sure that a change has had a positive outcome. Such a tracking system must be implemented before the first step is made.

This policy brief builds on the above discussion by looking at various measures aimed at reducing the prevalence of fixed-term contracts among young people. In the following section, these measures are explained and briefly summarized, starting with the measure that is expected to have the greatest impact.

Labour laws

To exert influence on the job market, governments can effectively utilise labour laws as a straightforward policy tool. In light of the analysis presented earlier, it is inferred that robust labour laws governing permanent employment contracts may potentially create disincentives for companies to offer such contracts. The heightened costs associated with dismissals for permanent employees contribute to this hesitancy, especially when compared to the relatively lower costs for terminating temporary contracts. To address this issue, the recommended policy approach involves relaxing the strictness of dismissal regulations pertaining to permanent employment contracts. Conversely, stricter regulations should be imposed on temporary contracts. The prevalent practice of chain contracts, where individuals are compelled to endure prolonged periods in non-standard employment arrangements, underscores the need for attention to this aspect of labour market dynamics. It is essential, however, to adopt a measured approach to these policy adjustments, avoiding excessively radical changes. Temporary contracts have proven to be instrumental in catalyzing an increase in the overall employment rate. Therefore, a balanced modification of labour laws can strike a harmony between providing job security for permanent employees and sustaining the positive impact of temporary contracts on employment rates. 

Apprenticeship guarantees

In the context of employment terminations, it is vital to provide individuals facing job loss with an adequate time frame for job search. This adjustment not only serves the immediate needs of those affected but also contributes to a reduction in the prevalence of temporary contracts. By affording individuals more time to seek alternative employment, the likelihood of entering precarious situations diminishes, thereby reducing the pressure to hastily accept the first available job offer. This proposed change aims to empower individuals in transition by enabling them to make more informed decisions about their next career move. With a sufficient time frame, individuals can thoroughly evaluate various job opportunities and negotiate favourable terms before accepting a new employment contract. Ultimately, this approach promotes a more secure and deliberative process for individuals navigating the job market post-dismissal.

Apprenticeships

When properly executed, apprenticeships serve as a valuable connection between employers and high school graduates. However, the effectiveness of this measure is contingent on securing approval and collaboration from multiple stakeholders. The primary stakeholders involved in this process are governments, companies, education systems, and students. Governments possess various instruments through which they can influence and support the apprenticeship system. Among these, the most impactful approach may involve providing subsidies to companies willing to hire high school graduates through apprenticeships. These subsidies should be linked to certain conditions, including a commitment from the employer to consider offering a permanent employment contract upon the successful completion of the apprenticeship by the student.

This strategic use of subsidies not only encourages companies to participate in apprenticeship programs but also aligns the interests of both employers and students. By fostering collaboration among governments, companies, education systems, and students, this approach strengthens the bridge between education and employment, promoting a smoother transition for high school graduates into the workforce.

Economic stability

Increasing economic stability is a complex task, but it holds paramount importance in providing companies with the assurance they need for effective planning. Such guarantees prompt companies to adopt a long-term perspective in seeking and retaining employees, reducing the reliance on the flexibility inherent in temporary contracts. This shift in approach is advantageous not only for companies but also for young individuals entering the workforce. Companies investing in employee training gain added security against short-term economic crises that could necessitate layoffs. Consequently, the company benefits more from the educational investment made in its workforce, creating a win-win scenario where long-term employment perspectives align with the interests of both employers and employees.

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