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TFP, Labor Productivity and the (Un)Observed Labor Input: Temporary Agency Work

The study focuses on the question of whether productivity estimates are biased due to the emergence of a new input that is usually omitted: temporary agency worker (TAW). The study analyzes labor productivity and TFP by means of a structural approach using a representative dataset of German manufacturing firms. The empirical results show, once TAW is taken into account, that: i) labor productivity in most manufacturing sectors is significantly lower; ii) average TFP differs significantly in most sectors; but iii) the coefficients for regular labor are not significantly different between estimations with and without TAW.