Financing Constraints and Fixed-term Employment Contracts

Andrea Caggese () and Vicente Cuñat ()

Economic Journal, 2008, vol. 118, issue 533, pages 2013-2046

Abstract: This article studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. It develops the model of an industry where firms face financing frictions and produce output using both fixed-term and permanent workers. Once calibrated, the model shows that financially constrained firms use fixed-term workers more intensely and make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a panel data of Italian manufacturing firms with detailed information about financing constraints and the type of workers employed by the firms. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.

Date: 2008

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Working Paper: Financing Constraints and Fixed-Term Employment Contracts (2006)
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