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The Macroeconomic Impact of Flexible Labour Contracts: An Application to Spain

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  • Bentolila, Samuel
  • Saint-Paul, Gilles

Abstract

This paper constructs a theoretical model to study the effects on employment of the introduction of flexible labour contracts (i.e. with low firing costs), which occurred in many European countries in the 1980s, which it then tests on Spanish data. The model predicts that such contracts increase the size of the employment response to aggregate shocks, while decreasing its persistence, and that employment overshoots its long-run level at the time these contracts are introduced. Econometric estimates of labour demand based on a panel of large Spanish industrial firms are consistent with several of the model's implications, in particular the increase in the cyclical response of employment.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 596.

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Date of creation: Dec 1991
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Handle: RePEc:cpr:ceprdp:596

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Related research

Keywords: Business Cycle; Europe; Firing Costs; Flexibility; Labour Markets; Panel Data; Unemployment;

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Cited by:
  1. Andrea Caggese & Vicente Cuñat, 2005. "Financing Constraints and Fixed-Term Employment Contracts," Working Papers 266, Barcelona Graduate School of Economics.
  2. Samuel Bentolila & Pierre Cahuc & Juan J. Dolado & Thomas Le Barbanchon, 2010. "Two-Tier Labor Markets In The Great Recession: France Vs. Spain," Working Papers wp2010_1009, CEMFI.
  3. Tealdi, Cristina, 2011. "How do employment contract reforms affect welfare? Theory and evidence," MPRA Paper 33573, University Library of Munich, Germany.
  4. Gorter, C. & Hassink, W. & Nijkamp, P., 1996. "On the endogeneity of output in dynamic labour-demand models," Serie Research Memoranda 0019, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages F270-F295, June.

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