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Reassessing Labor Market Reforms: Temporary Contracts as a Screening Device

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  • Renato Faccini

Abstract

Standard models of temporary contracts are either inconclusive, or fail to account for the positive correlation between temporary contracts and the employment rate, and for the high transition rates into permanent employment measured in Europe. This paper shows that a matching model in which firms use temporary contracts to screen workers for permanent positions can successfully fulfill this task. When the model is calibrated to the Italian economy, it accounts for salient statistics including the worker turnover rate, the transition rates into permanent employment, and the drop in the unemployment rate following the reforms implemented in the late 1990s. When temporary contracts are used as a screening device, they can increase both productivity and welfare. Their quantitative impact crucially hinges on dismissal costs and minimum wages.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2008/27.

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Date of creation: 2008
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Handle: RePEc:eui:euiwps:eco2008/27

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Keywords: job-search; temporary contracts; labor market institutions; screening; hiring procedures; turnover rates; wage di¤erentials.;

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References

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Citations

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Cited by:
  1. Tealdi, Cristina, 2011. "Typical and atypical employment contracts: the case of Italy," MPRA Paper 39456, University Library of Munich, Germany.
  2. Shutao Cao & Enchuan Shao & Pedro Silos, 2010. "Fixed-Term and Permanent Employment Contracts: Theory and Evidence," CESifo Working Paper Series 3150, CESifo Group Munich.
  3. Anne Bucher, 2010. "Hiring Practices, Employment Protection and Temporary Jobs," Papers 2010-13, TEPP Working Papers.
  4. Anne BUCHER, 2011. "Youth Labor Market Outcomes: A Model with Learning on Match Quality," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Cahuc, Pierre & Charlot, Olivier & Malherbet, Franck, 2012. "Explaining the Spread of Temporary Jobs and its Impact on Labor Turnover," IZA Discussion Papers 6365, Institute for the Study of Labor (IZA).
  6. Ferrari, Filippo, 2011. "Lo sviluppo delle competenze nei contesti precari
    [Skills development in precariousness: the dark side of flexibility?]    ," MPRA Paper 33284, University Library of Munich, Germany.

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