Working Paper: CEPR ID: DP8763
Authors: Juan J. Dolado; Salvador Ortigueira; Rodolfo Stucchi
Abstract: This paper analyzes the effect of having a large gap in firing costs between permanent and temporary workers in a dual labour market on TFP development at the firm level. We propose a simple model showing that, under plausible conditions, both temporary workers' effort and firms' temp-to-perm conversion rates decrease when that gap increases. We test this implication by means of a panel of Spanish manufacturing firms from 1991 to 2005, using as natural experiments some labour market reforms entailing substantial changes in this gap. Our main empirical finding is that reforms leading to a lower gap enhanced conversion rates, which in turn increased firms' TFP, and conversely for reforms that increased the gap.
Keywords: Firing Costs; Firms; TFP; Temporary Workers; Workers' Effort
JEL Codes: C14; C52; D24; J24; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firing cost gap (J32) | conversion rates (Y10) |
| conversion rates (Y10) | effort and training (M53) |
| firing cost gap (J32) | effort and training (M53) |
| conversion rates (Y10) | TFP (F16) |
| firing cost gap (J32) | TFP (F16) |