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Fixed-term contracts in East and West Germany: Low wages, poor prospects?

  • McGinnity, Frances
  • Mertens, Antje
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    Amid lively debate on the consequences of temporary employment, the paper examines the wages and transitions of temporary employees in Germany using socio-economic panel data from the late 1990s. Compared to simple OLS estimates, using a fixed effects model decreases wage differentials between permanent and temporary workers. A two-step instrumental variables estimator leads to insignificant estimates, suggesting that the contract type is an endogenous variable. Moreover, about 1/5 of male temporary employees experience significantly higher 2 and 10 year wage growth than workers on permanent contracts. Using multinomial logistic regression models we find that many temporary workers move into permanent jobs, often with the same employer. For some temporary employment leads to unemployment, particularly those with low human capital. Positioning ourselves between arguments on the positive and negative consequences of temporary employment, we develop the idea of a two-tier labour market for temporary employment in Germany.

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    File URL: http://econstor.eu/bitstream/10419/65345/1/727068849.pdf
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    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2002,72.

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    Date of creation: 2002
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    Handle: RePEc:zbw:sfb373:200272
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    1. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers.
    2. Susan N. Houseman & Katharine G. Abraham, 1994. "Labor Adjustment Under Different Institutional Structures: A Case Study of Germany and the United States," Upjohn Working Papers and Journal Articles 94-26, W.E. Upjohn Institute for Employment Research.
    3. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June.
    4. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
    5. Juan F. Jimeno & Luis Toharia, 1993. "The effects of fixed-term employment on wages: theory and evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 475-494, September.
    6. Dominique Goux & Eric Maurin & Marianne Pauchet, 1999. "Fixed-term Contracts and the Dynamics of Labour Demand," Working Papers 99-02, Centre de Recherche en Economie et Statistique.
    7. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages F270-F295, June.
    8. Catalina Amuedo-Dorantes, 2000. "Work transitions into and out of involuntary temporary employment in a segmented market: Evidence from Spain," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 53(2), pages 309-325, January.
    9. Alison L. Booth & Marco Francesconi & Jeff Frank, 2002. "Temporary Jobs: Stepping Stones or Dead Ends?," LABORatorio R. Revelli Working Papers Series 8, LABORatorio R. Revelli, Centre for Employment Studies.
    10. Boockmann, Bernhard & Hagen, Tobias, 2001. "The use of flexible working contracts in West Germany: evidence from an establishment panel," ZEW Discussion Papers 01-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    11. Bertil Holmlund & Donald Storrie, 2002. "Temporary Work in Turbulent Times: The Swedish Experience," CESifo Working Paper Series 671, CESifo Group Munich.
    12. Henry S. Farber, 1999. "Alternative and Part-Time Employment Arrangements as a Response to Job Loss," NBER Working Papers 7002, National Bureau of Economic Research, Inc.
    13. Farber, Henry S, 1999. "Alternative and Part-Time Employment Arrangements as a Response to Job Loss," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S142-69, October.
    14. Hagen, Tobias, 2001. "Do temporary workers receive risk-premiums? Assessing the wage effects of fixed-term contracts in West-Germany by matching estimators compared with parametric apporaches," ZEW Discussion Papers 01-71, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    15. Hunt, Jennifer, 2000. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," Economica, London School of Economics and Political Science, vol. 67(266), pages 177-202, May.
    16. María A.Davia & Virginia Hernanz, 2004. "Temporary employment and segmentation in the Spanish labour market: An empirical analysis through the study of wage differentials," Spanish Economic Review, Springer, vol. 6(4), pages 291-318, December.
    17. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
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