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Promoting Permanent Employment: Lessons from Spain


  • Mendez, Ildefonso


This paper presents the first joint evaluation of the two major labour market reforms implemented in Spain to foster permanent employment in 1994 and 1997. The 1994 reform restored the principle of causality in the application of temporary contracts and the 1997 reform introduced a new permanent contract figure with lower payroll taxes and dismissal costs than the ordinary one. To evaluate these non-targeted treatments I present a family of semiparametric estimators that predict the outcome that would have been observed in the absence of a treatment by exploiting the time series variation of the outcome in the pre-treatment period. Alternative counterfactuals are also explored by means of conventional between-groups estimators. Estimates using the Spanish Labour Force Survey indicate that employers did not change their contract conversion practices in response to either the 1994 nor the 1997 reforms. The 1997 reform succeed in increasing unemployment to permanent employment transition probabilities for most groups of unemployed workers, including the middle-aged. This result rejects the natural experiment research design implemented in existing papers analyzing the effects of the 1997 reform.

Suggested Citation

  • Mendez, Ildefonso, 2008. "Promoting Permanent Employment: Lessons from Spain," MPRA Paper 7933, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7933

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    References listed on IDEAS

    1. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, "undated". "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Working Papers 2003-14, FEDEA.
    2. Guadalupe, Maria, 2003. "The hidden costs of fixed term contracts: the impact on work accidents," Labour Economics, Elsevier, vol. 10(3), pages 339-357, June.
    3. J. Ignacio García-Pérez & Yolanda F. Rebollo Sanz, 2009. "The use of permanent contracts across Spanish regions: Do regional wage subsidies work?," Investigaciones Economicas, Fundación SEPI, vol. 33(1), pages 97-130, January.
    4. Alba-Ramirez, Alfonso, 1994. "Formal Training, Temporary Contracts, Productivity and Wages in Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 151-170, May.
    5. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-318, May.
    6. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
    7. Alberto Abadie, 2005. "Semiparametric Difference-in-Differences Estimators," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 1-19.
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    Cited by:

    1. Yusuke Kamishiro & Roberto Serrano, 2011. "Equilibrium Blocking in Large Quasilinear Economies," Mathematics of Operations Research, INFORMS, vol. 36(3), pages 552-567, August.
    2. Roberto Serrano, 2009. "On Watson's Non-Forcing Contracts and Renegotiation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2350-2360.
    3. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
    4. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
    5. Inmaculada Garcia & Colin Green & Maria Navarro Paniagua, 2012. "New Estimates of the Effect of Temporary Employment on Absenteeism," Working Papers 24151321, Lancaster University Management School, Economics Department.
    6. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, and Debt Valuation," Working Papers wp2009_0902, CEMFI.

    More about this item


    Temporary employment; permanent employment; dismissal costs; payroll taxes;

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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