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Job creation in a dual labor market: a constructivist approach

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  • Normann Rion

    (UM - Le Mans Université, CEPREMAP - Centre pour la recherche économique et ses applications - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres)

Abstract

In this paper, I review matching models of dual labor markets from a theoretical point of view and describe the consequences of the most common sets of assumptions on job creation. I assert that two poles arise in the literature depending on the modeling of fixed-term contracts. Some papers assume that fixed-term contracts are flexible in the sense that firm-worker matches may costlessly separate any time. Others assume that a fixed-term match is rigid and cannot split before reaching its stipulated termination date, regardless the undergone shocks. Modeling fixed-term contracts as utterly flexible tends to make fixed-term contracts the only vehicle of job creation, while open-ended contracts only appear as converted expiring fixed-term contracts. This counter-factual result encourages the use of ad hoc hiring rules that ensure that job creation involves both contracts. On the contrary, modeling fixed-term contracts as rigid makes fixed-term contracts less attractive and leaves more room for job creation to involve open-ended contracts. Substitution effects between contracts can be considered in these frameworks. I build up a model with rigid fixed-term contracts and heterogeneous productivity of matches assumption by assumption and find major robustness issues. Introducing the convertibility of fixed-term contracts into open-ended ones flips over the ranking of contracts at the hiring stage with respect to productivity. Enabling matches to optimize the average duration of fixed-term contracts leads to highly counter-factual results: the shortest and the least productive fixed-term matches have the highest probabilities to be converted to open-ended contracts. The highlighted robustness issues and counter-factual predictions contaminate recent papers studying labor market dualism and heterogeneity in workload fluctuations.

Suggested Citation

  • Normann Rion, 2021. "Job creation in a dual labor market: a constructivist approach," Working Papers hal-03125344, HAL.
  • Handle: RePEc:hal:wpaper:hal-03125344
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03125344
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    References listed on IDEAS

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