Compensation of On‐Call and Fixed‐Term Employment: The Role of Uncertainty

Abstract

This paper analyses the compensation of fixed‐term and on‐call employment contracts, applying an analytical framework in which wage differentials result from two types of uncertainty. Quantity uncertainty originates from product demand volatility. Quality uncertainty, on the other hand, originates from the fact that employers are ex‐ante unable to observe fully a worker's ability. Using matching techniques, we analyse wage differentials using linked employer–employee data for the Netherlands. Findings indicate that on‐call workers receive compensation for providing quantity flexibility, or at least did so before the regulatory change in 1999. Compensation of fixed‐term contracts, however, is dominated by the negative wage effect of quality uncertainty.