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Moving towards a Single Labour Contract: Transition vs. Steady-state

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Listed:
  • Dolado, Juan J.
  • Lalé, Etienne
  • Siassi, Nawid

Abstract

This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market with dual employment protection. We develop a computationally tractable approach to compare two economic environments: one with flexible entry-level jobs and high employment protection at longer tenures, and another one with a SOEC featuring employment protection levels that increase smoothly with tenure. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a dual labour market. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.

Suggested Citation

  • Dolado, Juan J. & Lalé, Etienne & Siassi, Nawid, 2015. "Moving towards a Single Labour Contract: Transition vs. Steady-state," CEPR Discussion Papers 11030, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11030
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    More about this item

    Keywords

    dualism; employment protection; labour market reform; single contract;
    All these keywords.

    JEL classification:

    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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