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How Binding Are Legal Limits? Transitions from Temporary to Permanent Work in Spain

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Author Info
Güell, Maia () (Universitat Pompeu Fabra, CEP (LSE), CEPR and IZA Bonn)
Petrongolo, Barbara (London School of Economics, CEP (LSE), CEPR and IZA Bonn)

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Abstract

In the mid-1980s, several European countries, characterized by high levels of employment protection, introduced fixed-term contracts. Since then most accessions to employment have been through fixed-term contracts. This paper studies the duration pattern of fixed-term contracts and the determinants of their conversion into permanent ones in Spain, a country in which the share of fixed-term employment is the highest in Europe. We estimate a duration model for temporary employment, with competing risks of terminating into permanent employment versus alternative states, and flexible duration dependence. We find that the shape of the baseline hazard is suggestive of two possible uses of fixed-term contracts by employers. First, there is a clear, pronounced spike at 3 years of duration, coinciding with the legal maximum duration of these contracts, suggesting that some fixed-term contracts are only converted into permanent ones when there is no other way to retain the worker. Second, there is a spike around 1 year of duration, which supports the idea that some of these contracts are also used as a screening device. Workers who successfully pass the screening may obtain a permanent renewal much before the legal duration limit of their contracts.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 782.

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Length: 38 pages
Date of creation: May 2003
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Handle: RePEc:iza:izadps:dp782

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Related research
Keywords: fixed-term contracts; duration models;

Other versions of this item:

Find related papers by JEL classification:
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General

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References listed on IDEAS
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  1. Alison L. Booth & Marco Francesconi & Jeff Frank, 2002. "Temporary Jobs: Stepping Stones Or Dead Ends?," Economic Journal, Royal Economic Society, vol. 112(480), pages F189-F213, June. [Downloadable!] (restricted)
    Other versions:
  2. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February. [Downloadable!] (restricted)
  3. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February. [Downloadable!] (restricted)
  4. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M. [Downloadable!] (restricted)
  5. 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. [Downloadable!]
    Other versions:
  6. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  7. repec:fth:prinin:433 is not listed on IDEAS
  8. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "A Matching Model of Crowding-Out and On-the-Job Search (with an application to Spain)," Working Papers 2002-16, FEDEA. [Downloadable!]
    Other versions:
  9. Maia Guell, 2000. "Fixed-term Contracts and Unemployment: an Efficiency Wage Analysis," Working Papers 812, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  10. César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," PIER Working Paper Archive 04-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  11. Maia Güell, 2000. "Fixed-Term Contracts and Unemployment: An Efficiency Wage Analysis," CEP Discussion Papers dp0461, Centre for Economic Performance, LSE. [Downloadable!]
  12. Narendranathan, W. & Stewart, M.B., 1989. "Modelling The Probability Of Leaving Unemployment: Competing Risks Models With Flexible Baseline Hazards," The Warwick Economics Research Paper Series (TWERPS) 331, University of Warwick, Department of Economics.
  13. J. Ignacio García-Pérez & Fernando Muñoz-Bullón, 2003. "The Nineties In Spain: Too Much Flexibility In The Youth Labour Market?," Business Economics Working Papers wb030302, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
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    Other versions:
  15. Alison L Booth & Juan J. Dolado & Jeff Frank, 2002. "Symposium On Temporary Work Introduction," Economic Journal, Royal Economic Society, vol. 112(480), pages F181-F188, June. [Downloadable!] (restricted)
  16. repec:fth:prinin:444 is not listed on IDEAS
  17. Sara de la Rica, 2003. "Wage differentials between Permanent and Temporal Contracts: Further Evidence," DFAEII Working Papers 200207, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  18. Jose Galdon-Sanchez & Maia Guell, 2000. "Let's go to court! Firing costs and dismissal conflicts," Working Papers 823, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  19. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages F270-F295, June. [Downloadable!] (restricted)
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  20. José Varejão & Pedro Portugal, 2003. "Why Do Firms Use Fixed-Term Contracts?," CETE Discussion Papers 0310, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
    Other versions:
  21. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
  23. 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. [Downloadable!] (restricted)
    Other versions:
  24. 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. [Downloadable!] (restricted)
  25. Wasmer, Etienne, 1999. "Competition for Jobs in a Growing Economy and the Emergence of Dualism," Economic Journal, Royal Economic Society, vol. 109(457), pages 349-71, July. [Downloadable!] (restricted)
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  26. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July. [Downloadable!] (restricted)
  27. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September. [Downloadable!] (restricted)
  28. Juan F. Jimeno & Luis Toharia, 1993. "The effects of fixed-term employment on wages: theory and evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 475-494, September. [Downloadable!]
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