Short-Term Contracts Regulations and Dynamic Labour Demand: Theory and Evidence

33 Pages Posted: 25 Jan 2007

See all articles by L. Nunziata

L. Nunziata

University of Padua - Department of Economics; IZA Institute of Labor Economics

Stefano Staffolani

Università Politecnica delle Marche - Faculty of Economics

Abstract

We present a dynamic labour demand model where we evaluate the impact of employment regulations on permanent and temporary employment. We consider three different kinds of regulations, namely firing costs, hiring costs and a constraint on temporary contracts. These regulations differently affect the size and composition of employment. The theoretical results are interpreted and questioned on the basis of empirical evidence on the employment effects of the regulation reforms that occurred in the major European countries in the period 1983-1999. The empirical analysis is based on a new set of time-varying indicators on permanent employment protection, fixed-term contracts and temporary agency work regulations. We find evidence in support of the hypothesis that fixed-term contracts have been effective stepping-stones to permanent jobs during the period under observation. On the contrary, flexible temporary agency work regulations seem to induce a substitution of permanent with temporary contracts.

Suggested Citation

Nunziata, Luca and Staffolani, Stefano, Short-Term Contracts Regulations and Dynamic Labour Demand: Theory and Evidence. Scottish Journal of Political Economy, Vol. 54, No. 1, pp. 72-104, February 2007. Available at SSRN: https://ssrn.com/abstract=959286 or http://dx.doi.org/10.1111/j.1467-9485.2007.00405.x

Luca Nunziata (Contact Author)

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Stefano Staffolani

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

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