There are at least two major drawbacks for companies that do this.
First, there can be declines in morale among the firm's workers. Temporary workers do not feel much connection to the firm and do not improve morale. Even the workers who are permanent may feel threatened by the fact that the firm is employing temporary workers. They may worry about whether they will be replaced by temporary workers.
Second, the firm will experience a great deal of turnover. When workers leave firms and firms need to hire new workers, the firms incur costs. They have to spend money on hiring new workers and training them. They lose productivity while the new workers learn their jobs. This happens more often with temporary workers because they are more likely to leave the company.