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Why Do Firms Use Fixed-Term Contracts?

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Author Info
José Varejão () (CETE, Faculdade de Economia, Universidade do Porto)
Pedro Portugal () (Banco de Portugal and Universidade Nova de Lisboa)

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Abstract

This paper investigates the reasons why firms use fixed-term contracts.Two distinctive features of these contracts - reduced firing costs and the prohibition of contract rollover - are highlighted. Firms' decision related to temporary contracts - the choice of the contract on offer and contract conversion - are modeled within standard adjustment costs and matching settings. Regression analysis is performed on the stock of fixed-term contracts and the flows of temporary workers to permanent positions. Results from a beta-binomial regression model indicate that screening workers for permanent positions is the single most important reason why firms use this type of contract.

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File URL: http://www.fep.up.pt/investigacao/cete/papers/dp0310.pdf
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Publisher Info
Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CETE Discussion Papers with number 0310.

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Length: 30 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:por:cetedp:0310

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Related research
Keywords: Fixed-Term Contracts Adjustment Costs Temporary Employment

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Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  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. Jennifer Hunt, 1994. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," NBER Working Papers 4825, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Güell, Maia & Petrongolo, Barbara, 2003. "How Binding Are Legal Limits? Transitions from Temporary to Permanent Work in Spain," IZA Discussion Papers 782, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Serrano, Carlos Garcia, 1998. "Worker Turnover and Job Reallocation: The Role of Fixed-Term Contracts," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 709-25, October.
    Other versions:
  5. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April. [Downloadable!] (restricted)
  6. J. M. R. Murteira & Joao M. C. Santos Silva, 2000. "Estimation of Default Probabilities Using Incomplete Contracts Data," Econometric Society World Congress 2000 Contributed Papers 1121, Econometric Society. [Downloadable!]
  7. Hamermesh, Daniel S & Wolfe, John R, 1990. "Compensating Wage Differentials and the Duration of Wage Loss," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S175-97, January. [Downloadable!] (restricted)
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  8. Catalina Amuedo-Dorantes, 2000. "Work transitions into and out of involuntary temporary employment in a segmented market: Evidence from Spain," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 53(2), pages 309-325, January.
  9. John M. Abowd & Patrick Corbel & Francis Kramarz, 1999. "The Entry And Exit Of Workers And The Growth Of Employment: An Analysis Of French Establishments," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 170-187, May. [Downloadable!] (restricted)
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  10. Burgess, Simon & Lane, Julia & Stevens, David, 2000. "Job Flows, Worker Flows, and Churning," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 473-502, July. [Downloadable!] (restricted)
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  11. Maurin, E., 2000. "The European Paradox: Do Flexible Contracts Create Rigid Labor Markets?," Papers 2000-07, Institut National de la Statistique et des Etudes Economiques-.
  12. Olivier Blanchard & Pedro Portugal, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March. [Downloadable!] (restricted)
  13. 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)
  14. David H. Autor, 2001. "Why Do Temporary Help Firms Provide Free General Skills Training?," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1409-1448, November. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. José Ignacio García Pérez & Yolanda Rebollo Sanz, 2005. "The use of permanent and temporary jobs across Spanish regions: Do unit labour cost differentials offer an explanation?," Economic Working Papers at Centro de Estudios Andaluces E2005/16, Centro de Estudios Andaluces. [Downloadable!]
    Other versions:
  2. Renato Faccini, 2007. "Unemployment and Within-Group Wage Inequality: Can Information Explain the Trade-Off?," Economics Working Papers ECO2007/14, European University Institute. [Downloadable!]
  3. Anabela Carneiro & Pedro Portugal, 2007. "Workers’ Flows and Real Wage Cyclicality," IZA Discussion Papers 2604, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Boockmann, Bernhard & Hagen, Tobias, 2005. "Fixed-term Contracts as Sorting Mechanisms: Evidence From Job Durations in West Germany," ZEW Discussion Papers 05-85, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  5. José Antonio Ariza Montes, 2008. "La estabilidad laboral en Andalucía: un análisis comparado entre hombres y mujeres mediante un modelo de regresión logística," Economic Working Papers at Centro de Estudios Andaluces E2008/06, Centro de Estudios Andaluces. [Downloadable!]
  6. Portugal, Pedro & Addison, John T., 2003. "Six Ways to Leave Unemployment," IZA Discussion Papers 954, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Yolanda Rebollo Sanz, 2006. "The role of job interruptions, temporary contracts and multi-firm experiences in the temporality trap in Spain," Working Papers 06.31, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
  8. Catalina Amuedo-Dorantes & Miguel Á. Malo, 2007. "How Are Fixed-term Contracts Used by Firms? An Analysis Using Gross Job and Worker Flows," Working Papers 0026, San Diego State University, Department of Economics. [Downloadable!]
  9. Güell, Maia & Petrongolo, Barbara, 2003. "How Binding are Legal Limits? Transitions from Temporary to Permanent Work in Spain," CEPR Discussion Papers 3931, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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