Why do managers use temporary contracts and agency staff? Sometimes it is for short-term projects. But often it is simply a device to try and get round the constraints of employment legislation, in the hope of keeping flexibility in an uncertain futurein essence, shifting the risk of job security from the firm to the individual. Of course, European legislation has recently made this more difficult. But there is a bigger question underlying the practice: whether using temporary contracts improves or harms an organisation's performance.

In general, the popular assumption has been that people will work harder if they have to get their contract renewed in a few months, and that that will improve output. On the other hand, it is argued that people on temporary contracts may be more dissatisfied and so perform less well. Psychologists in this area have performed useful studies over recent years, though the results have not always been what one would expect.

Mark O'Sullivan of Birkbeck tested the question in a small but representative study of UK public sector employers, by looking at expectations of staff performance (through scores in the recruitment process) against how they actually performed (through staff appraisal scores), and seeing whether this comparison was different for those on temporary contracts. The results depended on how employable staff felt. Professionals who expected easily to be able to find another job resented being put on temporary contracts and performed less well. But less skilled or mobile staff in areas with fewer vacancies did work harder and produced more.

A subsequent major survey-based study is now under way across a number of European countries, led by David Guest of Kings College London. Initial results suggest that staff often now prefer to be on temporary contractsbut that the reason is that it is a way of avoiding the more difficult or less visible work: this gets given to the permanent staff, who also have to put up with the long hours needed to deliver it, while their temp colleagues are already down the pub. The effect on organisational performance has not yet been measured, but seems unlikely to be positive.

We can conclude that the true position is complex, and that no one should offer temporary contracts without a good deal of thought: motivational effects on both the temporary employees and on their permanent colleagues may be hard to predict. And a small early investment in expert advice may pay dividends later on.