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Why do Firms Use Fixed-Term Contracts?

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  • José Varejão
  • Pedro Portugal

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' decisions 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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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200308.

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Date of creation: 2003
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Handle: RePEc:ptu:wpaper:w200308

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  1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  2. 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.
  3. 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.
  4. 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.
  5. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  6. Hunt, Jennifer, 2000. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," Economica, London School of Economics and Political Science, vol. 67(266), pages 177-202, May.
  7. Alison L. Booth & Marco Francesconi & Jeff Frank, 2002. "Temporary Jobs: Stepping Stones or Dead Ends?," LABORatorio R. Revelli Working Papers Series 8, LABORatorio R. Revelli, Centre for Employment Studies.
  8. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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, Cornell University, ILR School, vol. 53(2), pages 309-325, January.
  11. Santos Silva, J.M.C. & Murteira, J.M.R., 2009. "Estimation of default probabilities using incomplete contracts data," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 457-465, June.
  12. Susan N. Houseman, 2001. "Why employers use flexible staffing arrangements: Evidence from an establishment survey," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(1), pages 149-170, October.
  13. 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.
  14. Eric Maurin, 2000. "The European Paradox : Do Flexible Contracts Create Rigid Labor Markets ?," Working Papers 2000-07, Centre de Recherche en Economie et Statistique.
  15. Eric Maurin, 2000. "The European Paradox : Do Flexible Contracts Create Rigid Labor Markets ?," Working Papers 2000-07, Centre de Recherche en Economie et Statistique.
  16. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April.
  17. 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.
  18. Pedro Portugal & Olivier Blanchard, 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.
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