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Screening on the Job: Should Temporary Jobs Be Subsidized?

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Author Info

  • Julien Albertini

    ()
    (EPEE et TEPP (FR CNRS no 3126), University of Evry Val d’Essonne)

  • Xavier Fairise

    ()
    (EPEE et TEPP (FR CNRS no 3126), University of Evry Val d’Essonne)

  • Florent Fremigacci

    ()
    (CREST, EPEE et TEPP (FR CNRS no 3126), University of Evry Val d’Essonne)

Abstract

The difficulty to allocate the right workers to the right jobs is an important source of market frictions. With the expansion of atypical jobs in the mid-1980’s, the idea that screening and flexibility could be complementary motivations arose. The purpose of this paper is twofold : (i) First, we investigate the screening effect of fixed-term contracts on employment (ii) Then, we analyze different subsidized temporary job schemes and their impact on the social welfare. We extend the framework of Pries and Rogerson (2005) by allowing firms to hire workers on both temporary and permanent jobs. Screening takes the form of a learning process where both the employer and the employee infer the match quality during a temporary job. We show that when temporary jobs are used as a screening device, they increase the employment size. Hiring and wage subsidies reduce both the unemployment rate and unemployment duration but have a different impact on the transition rate between unemployment, temporary jobs and permanent jobs. The hiring subsidy can be welfare enhancing while a permanent and identical wage subsidy for all temporary employed workers is always welfare detrimental. However, allowing the wage subsidy to compensate low income temporary jobs have a positive impact on labour market performance and may increase the aggregate welfare.

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File URL: http://epee.univ-evry.fr/RePEc/2009/09-14.pdf
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Bibliographic Info

Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 09-14.

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Length: 23 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:eve:wpaper:09-14

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Related research

Keywords: Fixed-duration contract; Subsidised temporary jobs; Active labor market policies; Screening; Unemployment; Matching model;

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References

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  1. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  2. Michael Gerfin & Michael Lechner & Heidi Steiger, 2003. "Does subsidised temporary employment get the unemployed back to work? An econometric analysis of two different schemes," Diskussionsschriften dp0303, Universitaet Bern, Departement Volkswirtschaft.
  3. Orszag, J. Michael & Snower, Dennis J., 2003. "Designing employment subsidies," Labour Economics, Elsevier, vol. 10(5), pages 557-572, October.
  4. Boockmann, Bernhard & Hagen, Tobias, 2008. "Fixed-term contracts as sorting mechanisms: Evidence from job durations in West Germany," Labour Economics, Elsevier, vol. 15(5), pages 984-1005, October.
  5. José Varejão & Pedro Portugal, 2003. "Why do Firms Use Fixed-Term Contracts?," Working Papers w200308, Banco de Portugal, Economics and Research Department.
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