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

Author

Listed:
  • Andrew Benito

    (Banco de España)

  • Ignacio Hernando

    (Banco de España)

Abstract

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.

Suggested Citation

  • Andrew Benito & Ignacio Hernando, 2003. "Labour demand, flexible contracts and financial factors: new evidence from Spain," Working Papers 0312, Banco de España.
    • Handle: RePEc:bde:wpaper:0312
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/03/Fic/dt0312e.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ana P. Fernandes & Priscila Ferreira, 2015. "Financing Constraints and Fixed-term Employment Contracts: Evidence from the 2008-2009 Financial Crisis," NIMA Working Papers 58, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    2. Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2012. "Unemployment and finance: how do financial and labour market factors interact?," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 464-489, July.
    3. Dorothea Schäfer & Susan Steiner, 2014. "Financial Development and Employment: Evidence from Transition Countries," Discussion Papers of DIW Berlin 1390, DIW Berlin, German Institute for Economic Research.
    4. cipollone piero & Anita Guelfi, 2006. "The value of flexible contracts; evidence from an italian panel of industrial firms," Temi di discussione (Economic working papers) 583, Bank of Italy, Economic Research and International Relations Area.
    5. repec:bge:wpaper:266 is not listed on IDEAS
    6. Andrea Caggese & Vicente Cuñat, 2008. "Financing Constraints and Fixed‐term Employment Contracts," Economic Journal, Royal Economic Society, vol. 118(533), pages 2013-2046, November.

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    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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