Temporary Jobs and State Dependence in Italy

Matteo Picchio

No 272, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: A dynamic unobserved effects probit analysis has been carried out to test the hypothesis of state dependence of temporary jobs and to understand their determinants. The econometric analysis has been conducted using the 2000, 2002, and 2004 waves of the Survey of Italian Households' Income and Wealth. The results show that, firstly, jobless and unstable workers are more likely to end up in temporary contracts. Secondly, there is a significant true state dependence effect of temporary contracts that might be due to the fact that firms are systematically using temporary jobs to face demand uncertainty: loss of motivation and depreciation of human capital due to low firm-specific investments may make temporary workers less likely to jump on stabler job relationships. Moreover, the true state dependence could be related to the presence of a dual labour market, segmented into "bad" and "good" jobs. Thirdly, a significant feedback effect from past temporary jobs to recent unemployment spells has been detected. Therefore, jobless and unstable workers are more likely to end up into temporary relationship generating a loss of human capital, affecting the workers' allocation in the whole economy, and widening the gap between possibly segmented labour markets. The policy maker might be aware of these costs associated to the widespread of temporary jobs and design policies to target those workers suffering most from the trap of temporary positions.

Keywords: dynamic unobserved effects probit model; feedback effects; individual heterogeneity; temporary employment (search for similar items in EconPapers)
JEL-codes: C23 C25 J29 (search for similar items in EconPapers)
Pages: 35
Date: 2006-10
New Economics Papers: this item is included in nep-dcm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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