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Financing Constraints and Fixed-Term Employment Contracts

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Author Info
Andrea Caggese ()
Vicente Cuñat ()

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Abstract

This paper studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. We first develop a dynamic model that shows the effects of financing constraints and firing costs on employment decisions. Once calibrated, the model shows that financially constrained firms tend to use more intensely fixed term workers, and to make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a unique panel data of Italian manufacturing firms with detailed information about the type of workers employed by the firms and about firm financing constraints.

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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1010.

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Date of creation: Jun 2006
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Handle: RePEc:upf:upfgen:1010

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Finacing Constraints; Employment; Fixed-Term Contracts;

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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    Other versions:
  2. Whited, Toni M., 2006. "External finance constraints and the intertemporal pattern of intermittent investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 467-502, September. [Downloadable!] (restricted)
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