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The Effects of Reducing Firing Costs in Spain: A Lost Opportunity?
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Victoria Osuna
Published/Copyright:
May 6, 2005
Abstract
In the mid 80's, many European countries liberalized the use of fixed-term (temporary) contracts in order to lower firm's non-wage labor costs, instead of reducing firing costs associated with indefinite duration (permanent) contracts. This policy generated segmented labor markets. The Spanish case is the most striking, with a share of temporary employment of 33% by the mid 90's. Since then, several reforms have been suggested and in this paper I quantify some of their effects. First, I build a model of job creation and destruction of the search and matching type that is able to generate the main properties of a segmented labor market like the Spanish one. Then, I use his model to quantify the effects of removing procedural wages, and further reductions in firing costs associated with permanent contracts. The main results are: (i) a small increase in permanent job destruction, (ii) a significant reduction in temporary job destruction, mainly driven by the increase in job conversions from temporary contracts into permanent ones, and (iii) a significant reduction in labor market segmentation measured as the reduction in the wage gap of temporary versus permanent workers.
Keywords: Firing costs; temporary employment; job creation; job destruction; job conversion; segmented labor markets
Published Online: 2005-05-06
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
Firing costs;
temporary employment;
job creation;
job destruction;
job conversion;
segmented labor markets
Articles in the same Issue
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- Optimal Time-Consistent Taxation with International Mobility Of Capital
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- Contributions Article
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- Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy
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- The Buffer-Stock Consumption Model with Endogenous Income Shifts
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- Indeterminacy and the Stability Puzzle in Non-Convex Economies
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