The Effects of Reducing Firing Costs in Spain: A Lost Opportunity?
AbstractIn the mid 80's, many European countries liberalized the use of fixed-term (temporary) contracts in order to lower firm's non-wage labor costs, instead of reducing firing costs associated with indefinite duration (permanent) contracts. This policy generated segmented labor markets. The Spanish case is the most striking, with a share of temporary employment of 33% by the mid 90's. Since then, several reforms have been suggested and in this paper I quantify some of their effects. First, I build a model of job creation and destruction of the search and matching type that is able to generate the main properties of a segmented labor market like the Spanish one. Then, I use his model to quantify the effects of removing procedural wages, and further reductions in firing costs associated with permanent contracts. The main results are: (i) a small increase in permanent job destruction, (ii) a significant reduction in temporary job destruction, mainly driven by the increase in job conversions from temporary contracts into permanent ones, and (iii) a significant reduction in labor market segmentation measured as the reduction in the wage gap of temporary versus permanent workers.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 5 (2005)
Issue (Month): 1 (May)
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Web page: http://www.degruyter.com
Other versions of this item:
- Victoria Osuna Padilla, 2004. "The Effects of Reducing Firing Costs in Spain: a Lost Opportunity?," Economic Working Papers at Centro de Estudios Andaluces E2004/18, Centro de Estudios Andaluces.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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