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Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms

Author

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  • Jimeno, Juan Francisco
  • Kugler, Adriana D.
  • Hernanz, Virginia
Abstract
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.

Suggested Citation

  • Jimeno, Juan Francisco & Kugler, Adriana D. & Hernanz, Virginia, 2003. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms," CEPR Discussion Papers 3724, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3724
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    More about this item

    Keywords

    Temporary employment; Dismissal costs; Payroll taxes; European unemployment;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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