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Why Do Firms Use Fixed-Term Contracts?

Author

Listed:
  • Portugal, Pedro

    () (Banco de Portugal)

  • Varejão, José

    () (University of Porto)

Abstract

Temporary forms of employment account for a variable but never trivial share of total employment in both the U.S. and in Europe. In this article we look at how one specific form of temporary employment ? employment with fixed-term contracts ? fits into employers' hiring policies. We find that human capital variables (schooling, skills and employer-provided training) as measured at the levels of the worker and the workplace are important determinants of the employers’ decisions to hire with fixed-term contracts and to promote temporary workers to permanent positions. Those employers that hire more with fixed-term contracts are also those that are more likely to offer a permanent position to their newly-hired temporary employees. Our results indicate that fixed-term contracts are used as mechanisms for screening workers for permanent positions.

Suggested Citation

  • Portugal, Pedro & Varejão, José, 2009. "Why Do Firms Use Fixed-Term Contracts?," IZA Discussion Papers 4380, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4380
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    More about this item

    Keywords

    fixed-term contracts; adjustment costs; labor demand;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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