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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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7933.

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Date of creation: Feb 2008
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Handle: RePEc:pra:mprapa:7933
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  1. 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.
  2. Bruce D. Meyer, 1994. "Natural and Quasi- Experiments in Economics," NBER Technical Working Papers 0170, National Bureau of Economic Research, Inc.
  3. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra.
  4. J.Ignacio García Pérez & Yolanda Rebollo Sanz, 2007. "The use of permanent contracts across Spanish regions: Do regional wage subsidies work?," Economic Working Papers at Centro de Estudios Andaluces E2007/07, Centro de Estudios Andaluces.
  5. 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 151-70, May.
  6. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-18, May.
  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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