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Why Do Firms Use Fixed-Term Contracts?

Author

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  • José Varejão

    (CETE, Faculdade de Economia, Universidade do Porto)

  • Pedro Portugal

    (Banco de Portugal and Universidade Nova de Lisboa)

Abstract

This paper investigates the reasons why firms use fixed-term contracts.Two distinctive features of these contracts - reduced firing costs and the prohibition of contract rollover - are highlighted. Firms' decision related to temporary contracts - the choice of the contract on offer and contract conversion - are modeled within standard adjustment costs and matching settings. Regression analysis is performed on the stock of fixed-term contracts and the flows of temporary workers to permanent positions. Results from a beta-binomial regression model indicate that screening workers for permanent positions is the single most important reason why firms use this type of contract.

Suggested Citation

  • José Varejão & Pedro Portugal, 2003. "Why Do Firms Use Fixed-Term Contracts?," CEF.UP Working Papers 0310, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:0310
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    More about this item

    Keywords

    Fixed-Term Contracts; Adjustment Costs; Temporary Employment;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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