A Nutshell Model of Demand of Permanent vs. Temporary Working Contracts

Abstract

This paper presents a two-period “nutshell” model that explains the composition of labour demand when the labour market is dualistic and workers may be hired via permanent (P) or temporary (T) contracts. The model does not explain the level of labor demand, nor the wage of permanent workers, assumed to be exogenous. This is the main difference with the more sophisticated structural model of Bentolila et al. (2012) where employment and wages are jointly determined. The nutshell model delivers, however, a number of easily testable hypotheses – very relevant for policy – that the structural model does not handle.

Keywords: dual labour markets; labour demand; productivity

JEL Classification: J0, D2, J2, J4, J41,