Evidence shows that earnings gaps between permanent and temporary workers are significantly larger at the bottom of the wage distribution (the so-called sticky-floor effect) (Bosio, 2014; Santangelo, 2011). As a result, a high share of temporary workers contributes to the wide overall wage inequality, since it increases inequality at the bottom end of the distribution and has a neutral effect on wage inequality at the top end. Temporary contracts provide employers with a mechanism to test workers before making a stronger commitment and adjust to business cycles by not renewing temporary contracts when business is slow.