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Temporary Jobs, Employment Protection and Labor Market Performance

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Author Info

  • Cahuc, Pierre

    ()
    (Ecole Polytechnique, Paris)

  • Postel-Vinay, Fabien

    ()
    (University College London)

Abstract

Many European labor markets are characterized by heavy employment protection taxes and the widespread use of fixed-duration contracts. The simultaneous use of these two policy instruments seems somewhat contradictory since the former primarily aims at limiting job destruction whereas the latter clearly intensifies it. In this paper, we use a simple matching model with endogenous job destructions to analyze the impact of a combination of the two policies. We find that the political support of insiders to firing restrictions does not necessarily worsen unemployment. In fact, it may be the willingness of a majority of workers to support the combination of two instruments with opposite effects on job destruction and job creation that increase unemployment and deteriorates efficiency. Moreover, we argue, that the concentration of firm ownership is likely to influence labor market regulations. We show that the preferred point of a majority of workers is a very flexible labor market, without any firing cost when profits are evenly distributed across the labor force (which portrays a situation where firm ownership is extremely dispersed), whereas a combination of job protection and temporary jobs is preferred by workers when the share of profits that they earn is zero (which corresponds to a situation where firm ownership is concentrated among a few shareholders not participating in the labor market).

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 260.

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Length: 41 pages
Date of creation: Feb 2001
Date of revision:
Publication status: published in: Labour Economics, 2002, 9 (1), 63-91
Handle: RePEc:iza:izadps:dp260

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Keywords: Unemployment; fixed duration contracts; employment protection; job destruction;

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  1. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  2. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February.
  3. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
  4. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  5. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January.
  6. Abowd, John M & Corbel, Patrick & Kramarz, Francis, 1997. "The Entry and Exit of Workers and the Growth of Employment: An Analysis of French Establishments," CEPR Discussion Papers 1765, C.E.P.R. Discussion Papers.
  7. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  8. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor Contracts and Flexibility: Evidence from a Labor Market Reform in Spain," Working Papers tecipa-346, University of Toronto, Department of Economics.
  9. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  10. Cabrales, Antonio & Hopenhayn, Hugo A., 1997. "Labor-market flexibility and aggregate employment volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 189-228, June.
  11. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  12. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  13. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  14. Dominique Goux & Eric Maurin, 2000. "Labor Market Institutions and Job Stability. A Firm-Level Analysis of Layoff Risk for High and Low-Seniority Workers," Working Papers 2000-29, Centre de Recherche en Economie et Statistique.
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