Can Fixed-Term Contracts Put Low Skilled Youth on a Better Career Path? Evidence from Spain

Fixed-term contracts have low firing costs and can thus help low skilled youth find a first job faster. But do these workers get a more rewarding career? Using Spanish social security data, we compare the careers of native male high-school dropouts who entered the labor market just before and just after a large liberalization in the use of fixed-term contracts in 1984. Using a cohort regression discontinuity design we find that the reform raised the likelihood of working before age 20. However, by substantially increasing the number of employment spells it reduced workers' accumulated employment up to 2006 by almost 200 days and accumulated wages by 22%. These effects are concentrated during the first 5-10 years of these young workers' career. We conclude that widespread fixed-term contracts have harmed the careers of low-skilled workers.