Working Paper: CEPR ID: DP8864
Authors: Pierre Cahuc; Olivier Charlot; Franck Malherbet
Abstract: This paper provides a simple model which explains the choice between permanent and temporary jobs. This model, which incorporates important features of actual employment protection legislations neglected by the economic literature so far, reproduces the main stylized facts about entries into permanent and temporary jobs observed in Continental European countries. We show that the stringency of legal constraints on the termination of permanent jobs has a strong positive impact on the turnover of temporary jobs. We also find that job protection has very small effects on total employment but induces large substitution of temporary jobs for permanent jobs which significantly reduces aggregate production.
Keywords: employment protection legislation; temporary jobs
JEL Codes: J63; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stringent legal constraints on the termination of permanent jobs (J63) | Increase in the turnover of temporary jobs (J60) |
| Increase in job protection for permanent positions (J68) | Greater reliance on temporary jobs (J69) |
| Increased job protection (J68) | Reallocation of job types (temporary for permanent) (J62) |
| Job protection (J68) | Adverse effect on aggregate production (E23) |