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The Welfare Cost of Business Cycles in an Economy with Nonclearing Markets

  • Elena Casquel
  • Antoni Cunyat
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    This paper analyzes thes dynamics of temporary jobs in a labor market characterized by worker's skill heterogeneity and employment protection. We construct a theoretical labor market that incorporates skill differences across workers in order to identify under which conditions temporary contracts are a way for workers to access to permanent contracts (stepping stone effect) or they are dead-end jobs without any good prospect (trap effect). We use longitudinal survey data of individuals to estimate competing risks model with multi-spells for Spain. To deal with selectivity, the model incorporates correlated unobserved determinants in the tranansition rates. Our results show the existence of two opposite dynamics of temporary contracts for skilled and unskilled workers: whereas for skilled workers temporary contracts serve as a stepping stone, unskilled workers seem to experiment a penalty, that is, they get "stuck" in temporary contracts. More importantly, controlling for unobserved heterogeneity is quite important in order to obtain clear estimates.

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    File URL: http://documentos.fedea.net/pubs/dt/2005/dt-2005-19.pdf
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    Paper provided by FEDEA in its series Working Papers with number 2005-19.

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    Handle: RePEc:fda:fdaddt:2005-19
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    1. Booth, Alison L. & Francesconi, Marco & Frank, Jeff, 2000. "Temporary Jobs: Stepping Stones or Dead Ends?," IZA Discussion Papers 205, Institute for the Study of Labor (IZA).
    2. Dolado, Juan J. & Garcia-Serrano, Carlos & Jimeno, Juan F, 2001. "Drawing Lessons From the Boom of Temporary Jobs in Spain," CEPR Discussion Papers 2884, C.E.P.R. Discussion Papers.
    3. Grégory Jolivet & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "The Empirical Content of the Job Search Model: Labor Mobility and Wage Distributions in Europe and the U.S," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00308803, HAL.
    4. Zijl, Marloes & van den Berg, Gerard J & Heyma, Arjan, 2004. "Stepping-stones for the unemployed: The effect of temporary jobs on the duration until regular work," Working Paper Series 2004:19, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    5. van Ours, J.C., 2004. "The locking-in effect of subsidized jobs," Other publications TiSEM c4fd99a1-4c2f-46c6-9ee2-3, Tilburg University, School of Economics and Management.
    6. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M.
    7. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc.
    8. Wasmer, E., 1997. "Competition for Jobs in a Growing Economy and the Emergence of Dualism," DELTA Working Papers 97-13, DELTA (Ecole normale supérieure).
    9. Gerard J. van den Berg & Anders Holm & Jan C. van Ours, 2002. "Do stepping-stone jobs exist? Early career paths in the medical profession," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(4), pages 647-665.
    10. van Ours, Jan C, 2002. "The Locking-in Effect of Subsidized Jobs," CEPR Discussion Papers 3489, C.E.P.R. Discussion Papers.
    11. 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).
    12. D'Addio, Anna Cristina & Rosholm, Michael, 2005. "Exits from temporary jobs in Europe: A competing risks analysis," Labour Economics, Elsevier, vol. 12(4), pages 449-468, August.
    13. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
    14. Van den Berg, Gerard J., 2000. "Duration Models: Specification, Identification, and Multiple Durations," MPRA Paper 9446, University Library of Munich, Germany.
    15. Bo E. Honoré, 1993. "Identification Results for Duration Models with Multiple Spells," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 241-246.
    16. Costas Meghir & E. Whitehouse, 1995. "Labour market transitions and retirement of men in the UK," IFS Working Papers W95/10, Institute for Fiscal Studies.
    17. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The identifiability of the mixed proportional hazards competing risks model," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(3), pages 701-710.
    18. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
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