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

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  • Dolado, Juan José
  • Ortigueira, Salvador
  • Stucchi, Rodolfo

Abstract

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.

Suggested Citation

  • Dolado, Juan José & Ortigueira, Salvador & Stucchi, Rodolfo, 2011. "Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms," UC3M Working papers. Economics we1137, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we1137
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    More about this item

    Keywords

    Firms' TFP;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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