Abstract
There has been a surge in temporary agency work in Germany since the 2004 deregulation of the temporary agency industry. Using empirical data, the author examines how this reform affected employment and wages. Controlling for compositional and macroeconomic effects, the results suggest that there was no change in overall employment, since temporary agency work replaced regular jobs. The wage gap between regular employees and temps widened after the reform, showing that firms use agency work to reduce labour costs. However, the main reason for the wage gap was the higher incidence of low-wage determinants among temps compared to regular employees.