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Paying for Others' Protection: Causal Evidence on Wages in a Two-Tier System

Listed author(s):
  • Centeno, Mario

    ()

    (Banco de Portugal)

  • Novo, Alvaro A.

    ()

    (Banco de Portugal)

Registered author(s):

    In a segmented labor market, theory predicts that employment protection has an asymmetric impact on entry and incumbent wages. We explore a reform that increased the protection of open-ended contracts for a well-defined subset of firms, while leaving it unchanged for other firms. The causal evidence points to a reduction in wages for new open-ended and fixed-term contracts and no impact for more tenured workers. The reductions estimated for entrants oscillate between -0.9 and -0.5 p.p., covering a significant part of the expected increase in firing costs. Firms with larger shares of fixed-term contracts shifted the burden to these workers.

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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8702.

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    Length: 29 pages
    Date of creation: Dec 2014
    Handle: RePEc:iza:izadps:dp8702
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