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Flexibility at the margin and labour market volatility: The case of Spain

  • Héctor Sala

    (Universitat Autònoma de Barcelona)

  • José I. Silva

    (Universitat Jaume I de Castelló)

The Spanish labour market is a prominent case of segmentation with flexibility at the margin (e.g., just a􀀞ecting fixed-term employees). Flexibility at the margin produces a gap in separation costs between temporary and permanent workers which causes fixed-term contracts to be the main workforce adjustment device. It also leads to a productivity gap, due to high turnover and lack of on-the-job training of temporary employees. To explain the high volatility of the Spanish labour market we develop a matching model with temporary and permanent employees where these gaps play a central role. This model is calibrated and simulated to match the stylised facts and assess the cyclical implications of the 1984 and 1997 labour market reforms.

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Article provided by Fundación SEPI in its journal Investigaciones Económicas.

Volume (Year): 33 (2009)
Issue (Month): 2 (May)
Pages: 145-178

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Handle: RePEc:iec:inveco:v:33:y:2009:i:2:p:145-178
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