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Labour Demand, Flexible Contracts and Financial Factors: Firm-Level Evidence from Spain

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  • Andrew Benito
  • Ignacio Hernando

Abstract

We estimate models of labour demand for a panel of 3,400 Spanish manufacturing firms over the period 1985-2001. We examine the roles of fixed-term contracts, financial factors and a policy reform in 1997 affecting permanent contracts by lowering payroll taxes and dismissal costs. Compared with permanent employment, the demand for flexible labour displays: (i) greater sensitivity to financial factors; (ii) greater cyclical sensitivity; (iii) a larger average wage elasticity; and (iv) less inertia. Our analysis of the 1997 policy reform suggests that a 5 percentage point reduction in the payroll tax is associated with an 8% increase in permanent labour demand. Copyright (c) Bank of England, 2007.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 70 (2008)
Issue (Month): 3 (06)
Pages: 283-301

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Handle: RePEc:bla:obuest:v:70:y:2008:i:3:p:283-301

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Cited by:
  1. Cervini-Plá, María & Ramos, Xavi & Silva, José I., 2010. "Wage Effects of Non-Wage Labour Costs," IZA Discussion Papers 4882, Institute for the Study of Labor (IZA).
  2. Chiara Coluzzi & Annalisa Ferrando & Carmen Martínez-Carrascal, 2009. "Financing obstacles and growth: An analysis for euro area non-financial corporations," Banco de Espa�a Working Papers 0836, Banco de Espa�a.
  3. Óscar J. Arce, 2005. "The fiscal theory of the price level: a narrow theory for non-fiat money," Banco de Espa�a Working Papers 0501, Banco de Espa�a.
  4. Andrea Caggese & Vicente Cuñat, 2005. "Financing Constraints and Fixed-Term Employment Contracts," Working Papers 266, Barcelona Graduate School of Economics.
  5. Coluzzi, Chiara & Ferrando, Annalisa & Martinez-Carrascal, Carmen, 2009. "Financing obstacles and growth: an analysis for euro area non-financial corporations," Working Paper Series, European Central Bank 0997, European Central Bank.
  6. Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, Elsevier, vol. 16(3), pages 320-329, June.
  7. Marina-Eliza Spaliara, . "Do Financial Factors Affect The Capital-Labour Ratio: Evidence From UK Firm-Level Data," Discussion Papers 09/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  8. Gatti, Donatella & Vaubourg, Anne-Gaël, 2009. "Unemployment and Finance: How Do Financial and Labour Market Factors Interact?," IZA Discussion Papers 4075, Institute for the Study of Labor (IZA).
  9. Erdem Basci & Yusuf Soner Baskaya & Mustafa Kilinc, 2011. "Financial Shocks and Industrial Employment," Working Papers 1112, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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