57 Pages Posted: 8 Mar 2001
Date Written: March 2001
Rather than decrease firing costs across the board, a number of European countries have allowed firms to hire workers on fixed-duration contracts. At the end of a given duration, these contracts can be terminated at little or no cost. If workers are kept on however, the contracts become subject to regular firing costs.
We argue in this paper that the effects of such a partial reform of employment protection may be perverse. The main effect may be high turnover in fixed-duration jobs, leading in turn to higher, not lower, unemployment, And, even if unemployment comes down, workers may actually be worse off, going through many spells of unemployment and fixed duration jobs, before obtaining a regular job. Looking at French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, their effect on the welfare of young workers appears to have been negative.
Keywords: Labor Market Reform, Temporary Employment, Unemployment, Turnover, Employment Protection
JEL Classification: J60, J63, J64, J68
Suggested Citation: Suggested Citation
Blanchard, Olivier J. and Landier, Augustin, The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France (March 2001). MIT Dept. of Economics Working Paper No. 01-14. Available at SSRN: https://ssrn.com/abstract=262668 or http://dx.doi.org/10.2139/ssrn.262668