Using temporary agency workers can improve company performance but cause anxiety amongst permanent staff who receive lower wages for the same roles, a new study by the National Institute of Economic and Social Research (NIESR) has found.
According to the research, hiring temporary staff can affect the wages of permanent colleagues in that occupation by as much as a 5 per cent.
Despite the downward wage pressure which suggests that hiring agency staff can result in cost savings for the employer, the study also found that across the workplace as a whole, many employers share some of the company's increased profitability with their permanent employees.
The number of temporary agency contractors has risen rapidly in recent years, with over a quarter of a million in the UK and the majority working in the private sector.
The findings could cause tensions among employees and contractors at a time when many permanent staff are facing pay freezes and cutbacks.
As well as decreased wages, workplaces that use temporary staff were more associated with lower job satisfaction and higher job anxiety among employees, although companies saw higher profits when using contractors than those that did not.
According to the research, permanent staff were not concerned about a threat to their positions from agency staff, but instead were unsettled by workplaces that made use of temporary staff, viewing them as more labour intensive and cost conscious.
Alex Bryson, senior research fellow of the report, said: "Temporary agency workers are increasingly common in the UK and in other countries like Germany. The study suggests that one reason for their use is that they help firms improve their performance."
"But employers face a dilemma. Temporary Agency Staff seem to have an adverse effect on employees' experiences at work, perhaps due a more labour intensive regime, one which is only partly compensated for with higher wages."