This paper studies the effect of production volatility on the duration of temporary contracts. A simple theoretical model is developed, in order to depict the choice of contract duration made by a firm recruiting temps to deal with activity peaks. Assuming that the hiring of a new temp is associated with selection and training costs, longer contracts have an option value in view of greater uncertainty. The model has two testable implications. First, production volatility positively affects contract length. Second, the shortage of alternative employment opportunities negatively affects contract length. Using data on Italian temporary workers, both implications are confirmed by the econometric analysis. Since contract duration turns out to be a good proxy of the precariousness of temps, it is precisely in more volatile sectors that temporary workers -in a sense- are not so “temporary”.
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Paper provided by European University Institute in its series Economics Working Papers with number
ECO2004/23.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:eui:euiwps:eco2004/23
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Find related papers by JEL classification: J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dye, Ronald A, 1985.
"Optimal Length of Labor Contracts,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 251-70, February.
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