Reassessing Labor Market Reforms: Temporary Contracts as a Screening Device

No ECO2008/27, Economics Working Papers from European University Institute

Abstract: Standard models of temporary contracts are either inconclusive, or fail to account for the positive correlation between temporary contracts and the employment rate, and for the high transition rates into permanent employment measured in Europe. This paper shows that a matching model in which firms use temporary contracts to screen workers for permanent positions can successfully fulfill this task. When the model is calibrated to the Italian economy, it accounts for salient statistics including the worker turnover rate, the transition rates into permanent employment, and the drop in the unemployment rate following the reforms implemented in the late 1990s. When temporary contracts are used as a screening device, they can increase both productivity and welfare. Their quantitative impact crucially hinges on dismissal costs and minimum wages.

Keywords: job-search; temporary contracts; labor market institutions; screening; hiring procedures; turnover rates; wage di¤erentials. (search for similar items in EconPapers)
JEL-codes: J31 J41 J63 J64 J65 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-dge and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (21)

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Journal Article: Reassessing Labour Market Reforms: Temporary Contracts as a Screening Device (2014)
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