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Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms

  • Dolado, Juan J.
  • Ortigueira, Salvador
  • Stucchi, Rodolfo

This paper analyzes the effect of having a large gap in firing costs between permanent and temporary workers in a dual labour market on TFP development at the firm level. We propose a simple model showing that, under plausible conditions, both temporary workers' effort and firms' temp-to-perm conversion rates decrease when that gap increases. We test this implication by means of a panel of Spanish manufacturing firms from 1991 to 2005, using as natural experiments some labour market reforms entailing substantial changes in this gap. Our main empirical finding is that reforms leading to a lower gap enhanced conversion rates, which in turn increased firms' TFP, and conversely for reforms that increased the gap.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8763.

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Date of creation: Jan 2012
Date of revision:
Handle: RePEc:cpr:ceprdp:8763
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  1. Güell, Maia & Petrongolo, Barbara, 2003. "How Binding Are Legal Limits? Transitions from Temporary to Permanent Work in Spain," IZA Discussion Papers 782, Institute for the Study of Labor (IZA).
  2. Sara Rica & Juan Dolado & Vanesa Llorens, 2008. "Ceilings or floors? Gender wage gaps by education in Spain," Journal of Population Economics, Springer, vol. 21(3), pages 751-776, July.
  3. Álvaro Escribano & Rodolfo Stucchi, 2011. "Catching up in total factor productivity through the business cycle: Evidence from Spanish manufacturing firms," Working Papers 2011-10, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  4. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  5. González, Xulia & Miles-Touya, Daniel, 2012. "Labor market rigidities and economic efficiency: Evidence from Spain," Labour Economics, Elsevier, vol. 19(6), pages 833-845.
  6. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor contracts and flexibility : evidence from a labor market reform in Spain," Economics Working Papers we091811, Universidad Carlos III, Departamento de Economía.
  7. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, 04.
  8. César Alonso-Borrego, 2010. "Firm behavior, market deregulation and productivity in Spain," Banco de Espa�a Working Papers 1035, Banco de Espa�a.
  9. repec:oup:restud:v:79:y::i:3:p:899-931 is not listed on IDEAS
  10. Claudio Michelacci & Josep Pijoan-Mas, 2012. "Intertemporal Labour Supply with Search Frictions," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 899-931.
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