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Fixed-term Contracts and Unemployment: an Efficiency Wage Analysis

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  • Maia Güell

Abstract

I analyze the effects of introducing fixed-term contracts, leaving existing labor market regulations unchanged, on unemployment and labor market segmentation. I use an efficiency wage model in which the firm's choice of contracts and the renewal rate of fixed-term contracts into permanent ones are endogenous. The renewal rate of fixed-term contracts is lower the higher the firing costs of permanent contracts are. Introducing fixed-term contracts can imply higher unemployment even in a world where reducing firing costs would reduce it. Moreover, when the two-tier system does not generate higher employment compared to the system with only permanent contracts, the segmentation of the labor market is socially too large.

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  • Maia Güell, 2003. "Fixed-term Contracts and Unemployment: an Efficiency Wage Analysis," Working Papers 18, Barcelona Graduate School of Economics.
    • Handle: RePEc:bge:wpaper:18
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    References listed on IDEAS

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    Cited by:

    1. Alonso-Borrego, César & Fernández-Villaverde, Jesús & Galdon-Sanchez, Jose Enrique, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," IZA Discussion Papers 1129, Institute for the Study of Labor (IZA).
    2. Lawrence M. Kahn, 2007. "The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence," Economic Journal, Royal Economic Society, vol. 117(521), pages 333-356, June.
    3. Vasileios Gkionakis, 2004. "Short Job Tenures and Firing Taxes in the Search Theory of Unemployment," CEP Discussion Papers dp0628, Centre for Economic Performance, LSE.
    4. Garibaldi, Pietro & Violante, Giovanni L, 2002. "Firing Tax and Severance Payment in Search Economies: A Comparison," CEPR Discussion Papers 3636, C.E.P.R. Discussion Papers.
    5. Guell, Maia, 2001. "Fixed-term contracts and the duration distribution of unemployment," LSE Research Online Documents on Economics 20122, London School of Economics and Political Science, LSE Library.
    6. Marco Leonardi & Giovanni Pica, 2007. "Employment Protection Legislation and Wages," CSEF Working Papers 175, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    7. Guell, Maia & Petrongolo, Barbara, 2007. "How binding are legal limits? Transitions from temporary to permanent work in Spain," Labour Economics, Elsevier, vol. 14(2), pages 153-183, April.
    8. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages 270-295, June.
    9. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    10. Bertil Holmlund & Donald Storrie, 2002. "Temporary Work In Turbulent Times: The Swedish Experience," Economic Journal, Royal Economic Society, vol. 112(480), pages 245-269, June.
    11. Bayo-Moriones, Alberto & Galdon-Sanchez, Jose Enrique & Güell, Maia, 2004. "Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data," IZA Discussion Papers 1321, Institute for the Study of Labor (IZA).
    12. Sílvio Rendon, 2004. "Job Creation and Investment in Imperfect Capital and Labor Markets," Economic Working Papers at Centro de Estudios Andaluces E2004/35, Centro de Estudios Andaluces.
    13. Koutentakis, Franciscos, 2008. "The effect of temporary contracts on job security of permanent workers," Economics Letters, Elsevier, vol. 101(3), pages 220-222, December.
    14. Gail Pacheco & Bill Cochrane, 2015. "Decomposing the temporary-permanent wage gap in New Zealand," Working Papers 2015-07, Auckland University of Technology, Department of Economics.
    15. Ferreira Sequeda, Maria & de Grip, Andries & Van der Velden, Rolf, 2015. "Does Informal Learning at Work Differ between Temporary and Permanent Workers? Evidence from 20 OECD Countries," IZA Discussion Papers 9322, Institute for the Study of Labor (IZA).
    16. Matteo, PICCHIO, 2006. "Wage Differentials and Temporary Jobs in Italy," Discussion Papers (ECON - Département des Sciences Economiques) 2006033, Université catholique de Louvain, Département des Sciences Economiques.
    17. Damiani, Mirella & Pompei, Fabrizio, 2009. "Labour protection and productivity in the European economies: 1995-2005," MPRA Paper 12710, University Library of Munich, Germany.
    18. Perugini, Cristiano & Pompei, Fabrizio, 2017. "Temporary Jobs, Institutions, and Wage Inequality within Education Groups in Central-Eastern Europe," World Development, Elsevier, vol. 92(C), pages 40-59.
    19. Boockmann, Bernhard & Hagen, Tobias, 2005. "Befristete und andere "atypische" Beschäftigungsverhältnisse: Wird der Arbeitsmarkt funktionsfähiger? (Fixed-term and other "atypical" employment relationship : is the labour marke," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(2/3), pages 305-324.

    More about this item

    Keywords

    Fixed-term and permanent contracts; renewal rate; efficiency wage; unemployment;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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