Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms
Adriana D. Kugler
Georgetown University - Public Policy Institute (GPPI); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)
Juan Francisco Jimeno-Serrano
Foundation for Applied Economic Research (FEDEA); Universidad de Alcala; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Universidad de Alcala de Henares - Department of Economic Analysis and Economic History
CEPR Discussion Paper No. 3724
Temporary employment contracts allowing unrestricted dismissals were introduced in Spain in 1984 and quickly came to account for most new jobs. In 1997, however, the Spanish government attempted to reduce the incidence of temporary employment by reducing payroll taxes and dismissal costs for permanent contracts. In this Paper, we exploit the fact that recent reforms apply only to certain demographic groups to set up a natural experiment research design to study the effects of contract regulations on employment and worker flows. Using data from the Spanish Labor Force Survey, we find that the reduction of payroll taxes and dismissal costs increased the employment of young men and women on permanent contracts, although the effects for young women are marginally significant. The results suggest a moderately elastic response of permanent employment to non-wage labour costs. We also find positive effects on the transitions from unemployment and temporary employment into permanent employment for young and older workers and from permanent employment to non-employment only for older men, suggesting that the reform had little effect on dismissals.
Number of Pages in PDF File: 46
Keywords: Temporary employment, dismissal costs, payroll taxes, European unemployment
JEL Classification: J23, J32, J38, J63, J65working papers series
Date posted: August 28, 2003
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