The effects of fixed-term contracts on labour market performance
During the 1980's, many European countries introduced flexibility measures in their labour market to fight high and persistent levels of unemployment. In particular, in many countries reforms consisted of the introduction of more flexible labour contracts (fixed-term contracts) in comparison to the predominant ones (permanent contracts). The purpose of this thesis is to analyse the effects of such contracts on the overall performance of the labour market. First, an economy with firing costs is analysed theoretically. Firing costs are generally considered one of the most important elements in making a labour market rigid. This chapter stresses the fact that it is not just the level of severance payments what matters, but a wider view of employment protection. In particular, dismissal conflicts are modeled explicitly and their cost is derived. In the second chapter, the effects on employment of introducing fixed-term contracts in an economy with only permanent contracts are analysed theoretically. Our findings are that higher employment at the expense of segmentation of the labour market only arises if wages are very flexible. Otherwise, employment is not necessarily higher than in a system with only permanent contracts. Moreover, from the social point of view, market segmentation is too large. The last two chapters are empirical work applied to Spain. The Spanish experience appears to be particularly useful in this context to draw some lessons of these policies because the unemployment rate is the highest among OECD economies despite the several "policy experiments" implemented in the last two decades. In Chapter 3 the duration pattern of fixed-term contracts and the determinants of the transformation of these into permanent ones are analysed. Evidence is found that fixed-term contracts are used as a screening device instrument. Also, employers use fixed-term contracts until their legal limit. In Chapter 4, we study the effects of fixed-term contracts on the duration distribution of unemployment. It is found that the chances of leaving unemployment for a reference group have increased at short durations, while they have decreased at long durations of unemployment.