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Buy Flexible, Pay More: The Role of Temporary Contracts on Wage Inequality

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  • Albanese, Andrea

    (LISER)

  • Gallo, Giovanni

    (INAPP – Institute for Public Policy Analysis)

Abstract

We investigate the role of temporary contracts in shaping wage inequality in a dual labour market. Based on Italian individual-level administrative data, our analysis focuses on new hires in temporary and open-ended contracts for the period of 2005–2015. To estimate the presence of differentials over the daily wage distribution, we follow Firpo (2007) and implement an inverse probability estimator, which allows us to control for labour market history, including lagged outcomes, over the last 16 years. Our results show the existence of a premium for temporary contracts over the full distribution of daily remuneration at entry, confirming the economic theory of equalizing differences. The wage premium is greater when permanent contracts are more valuable, such as for 'marginalised' categories like female, young, and low-paid temporary workers, and during the years of the economic crisis. The gap remains substantial after taking into account differences in working hours between workers.

Suggested Citation

  • Albanese, Andrea & Gallo, Giovanni, 2020. "Buy Flexible, Pay More: The Role of Temporary Contracts on Wage Inequality," IZA Discussion Papers 13008, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13008
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    More about this item

    Keywords

    temporary work; wage inequality; unconditional quantile treatment effect; inverse probability weighting;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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