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How Binding are Legal Limits? Transitions from Temporary to Permanent Work in Spain

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Author Info
Güell, Maia
Petrongolo, Barbara

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Abstract

In the mid-1980s, several European countries, characterized by high levels of employment protection, introduced fixed-term contracts. Since then most accessions to employment have been through fixed-term contracts. This Paper studies the duration pattern of fixed-term contracts and the determinants of their conversion into permanent ones in Spain, a country in which the share of fixed-term employment is the highest in Europe. We estimate a duration model for temporary employment, with competing risks of terminating into permanent employment versus alternative states, and flexible duration dependence. We find that the shape of the baseline hazard is suggestive of two possible uses of fixed-term contracts by employers. First, there is a clear, pronounced spike at three years of duration, coinciding with the legal maximum duration of these contracts, suggesting that some fixed-term contracts are only converted into permanent ones when there is no other way to retain the worker. Second, there is a spike around one year of duration, which supports the idea that some of these contracts are also used as a screening device. Workers who successfully pass the screening may obtain a permanent renewal much before the legal duration limit of their contracts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3931.

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Date of creation: Jun 2003
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Handle: RePEc:cpr:ceprdp:3931

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Related research
Keywords: duration models; fixed-term contracts;

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Find related papers by JEL classification:
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General

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    Other versions:
  3. Maia Guell, 2000. "Fixed-term Contracts and Unemployment: an Efficiency Wage Analysis," Working Papers 812, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  4. César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," PIER Working Paper Archive 04-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
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  12. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor contracts and flexibility : evidence from a labor market reform in Spain," Economics Working Papers we091811, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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    Other versions:
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  17. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February. [Downloadable!] (restricted)
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  24. José Varejão & Pedro Portugal, 2003. "Why Do Firms Use Fixed-Term Contracts?," CETE Discussion Papers 0310, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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  25. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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