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Labour demand, flexible contracts and financial factors: new evidence from Spain

  • Andrew Benito

    ()

    (Banco de España)

  • Ignacio Hernando

    ()

    (Banco de España)

We estimate models of labour demand for a panel of 3,400 Spanish manufacturing firms over the period 1985-2001. We examine the roles of flexible labour through temporary contracts, financial factors and a policy reform in 1997 affecting permanent contracts by lowering payroll taxes and dismissal costs. Compared to permanent employment, the demand for flexible labour displays (i) greater sensiti vity to financial factors (ii) greater cyclical sensitivity (iii) a larger average wage elasticity (iv) less inertia. Our analysis of the 1997 policy reform finds an effect of payroll taxes on employment. A 5 percentage point reduction in the payroll tax increases labour demand by 8 per cent.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/03/Fic/dt0312e.pdf
File Function: First version, September 2003
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0312.

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Length: 40 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:bde:wpaper:0312
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