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What policy to reduce labour market segmentation?


  • C. Berson
  • N. Ferrari


The French labour market is segmented between those with stable jobs and those alternating temporary contracts and periods of unemployment. This Rue de la Banque looks at the different policies aimed at reducing this duality. It shows that contributions that decrease in line with seniority or a tax on contract terminations reduce the share of short-term contracts in the economy, but at the cost of a more rigid labour market and lower productivity. An over-contribution on temporary jobs, financing a premium for hiring on permanent contracts, also reduces the segmentation of the labour market; however, it does not have these adverse effects on labour market flexibility and productivity. Introducing a premium to reduce segmentation is therefore more desirable than a tax in order to preserve the flexibility of the labour market.

Suggested Citation

  • C. Berson & N. Ferrari, 2016. "What policy to reduce labour market segmentation?," Rue de la Banque, Banque de France, issue 35, december..
  • Handle: RePEc:bfr:rueban:2016:35

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    References listed on IDEAS

    1. Berson, Clémence & Ferrari, Nicolas, 2015. "Financial incentives and labour market duality," Labour Economics, Elsevier, vol. 37(C), pages 77-92.
    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.
    3. Bassanini, Andrea & Garnero, Andrea, 2013. "Dismissal protection and worker flows in OECD countries: Evidence from cross-country/cross-industry data," Labour Economics, Elsevier, vol. 21(C), pages 25-41.
    4. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages 214-244, June.
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