Flexibility at the margin and labour market volatility: The case of Spain

Héctor Sala and José Ignacio Silva ()
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Héctor Sala: Universitat Autònoma de Barcelona

Investigaciones Economicas, 2009, vol. 33, issue 2, pages 145-178

Abstract: The Spanish labour market is a prominent case of segmentation with flexibility at the margin (e.g., just a􀀞ecting fixed-term employees). Flexibility at the margin produces a gap in separation costs between temporary and permanent workers which causes fixed-term contracts to be the main workforce adjustment device. It also leads to a productivity gap, due to high turnover and lack of on-the-job training of temporary employees. To explain the high volatility of the Spanish labour market we develop a matching model with temporary and permanent employees where these gaps play a central role. This model is calibrated and simulated to match the stylised facts and assess the cyclical implications of the 1984 and 1997 labour market reforms.

Keywords: flexibility at the margin; labour market volatility; firing costs; labour productivity; matching. (search for similar items in EconPapers)
JEL-codes: J23 J24 J41 J63 (search for similar items in EconPapers)
Date: 2009
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