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 contracts in order to lower firm.s non-wage labor costs, instead of reducing firing costs associated with indefinite duration contracts. This policy generated segmented labor markets, being the Spanish case the most striking with a share of temporary employment of 33% by mid 90.s. Ever since, several reforms have been proposed and in this paper we quantify the effects of some of them. First, we build a model of job creation and destruction of the search and matching type that is able to replicate the main properties of a segmented labor market like the Spanish one. Then, we use this model to quantify the effects of eliminating procedural wages and further reducing firing costs associated with permanent contracts. The main results are: (i) a small increase on permanent job destruction, (ii) a significant reduction of 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 ones.
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Bibliographic InfoPaper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/18.
Length: 34 pages
Date of creation: 2004
Date of revision:
Firing costs; Temporary Employment; Job destruction; Job conversions; Segmented labor markets; job creation.;
Other versions of this item:
- Osuna Victoria, 2005. "The Effects of Reducing Firing Costs in Spain: A Lost Opportunity?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-29, May.
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - 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; Private Pensions
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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