The Effects of Fixed-Term Contracts on the Duration Distribution of Unemployment: the Spanish Case

This paper studies the effects of the introduction of fixed-term contracts in Spain on the duration distribution of unemployment, with particular emphasis on the changes in duration dependence. Since the introduction of fixed-term contracts in the mid 1980s, the Spanish labor market has become more dynamic in terms of inflows and outflows from unemployment to employment. I estimate a parametric duration model using cross-sectional data drawn from the Spanish Labor Force Survey from 1980 to 1994, which allows me to analyze the chances of leaving unemployment before and after the introduction of fixed-term contracts. I find evidence that for very short durations, of up to five months, the probability of leaving unemployment has increased since the introduction of fixed-term contracts. But the reverse is true for longer durations. Also, the chances of finding a job are significantly higher for those workers who became unemployed because their fixed-term contract came to an end than for those who lost their job for other reasons. In addition, there is less duration dependence for those who lost their job due to the expiration of a fixed-term contract than for those who lost their job for other reasons.