Working Paper: CEPR ID: DP2884
Authors: Juan José Dolado; Carlos García-Serrano; Juan Francisco Jimeno-Serrano
Abstract: During the last two decades many EU countries have reformed the set of legal rules that regulate dismissals. In contrast with other institutional reforms of the labour market, there seems to be a common strategy of maintaining strict employment protection legislation for workers under the typical ?full-time?/permanent employment contract, but liberalising ?atypical?/temporary/part-time employment contracts for new entrants in the labour market. As a result, the incidence of temporary employment has noticeably increased across the EU, Spain being the paramount case in this regard. In this Paper we aim at two goals. First, we take stock of the available Spanish evidence regarding the consequences of a dual labour market -in which one-third of employees are under very flexible employment contracts with low severance payments and two-thirds are under permanent employment contracts with very high employment protection- and the lessons which can be drawn for other countries. Secondly, we address the puzzle of why temporary employment in Spain remains so high, despite recent labour market reforms which have reduced firing costs under the permanent contract and restricted the use of temporary contracts.
Keywords: employment protection legislation; temporary employment
JEL Codes: J65; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liberalization of fixed-term contracts (FTCs) (M55) | increase in temporary employment (J68) |
| introduction of FTCs (L51) | increase in worker turnover (J63) |
| increase in worker turnover (J63) | lower job tenure among temporary workers (J63) |
| prevalence of FTCs (L51) | reduction in long-term unemployment (J65) |
| high turnover (J63) | crowd out opportunities for unemployed individuals (J68) |
| existence of a dual labour market (J42) | decline in training opportunities (J24) |
| decline in training opportunities (J24) | decreases overall labour productivity (J29) |
| temporary employment (J63) | impact on regional migration (R23) |
| high turnover and job insecurity (J63) | lower fertility rates (J13) |
| widening wage distribution (D39) | temporary workers earn less than permanent counterparts (J31) |