Fixed-term employment contracts in Spain: labor market flexibility or segmentation?

Alfonso Alba

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In this article, we provide some insights into the labor market effects of fixed-term contracts in Spain. We use in our study the dual labor market theory and some tenets of efficiency wage models. First, we discuss various relevant implications of the introduction of fixed-term contracts for the Spanish labor market outcomes. Then, we undertake the empirical analysis. This has shown evidence of significant linkages between firms' use of fixed-term contracts and an increasing segmentation of the Spanish labor market. Specifically, firms seem to use the temporary employment relationship to screen workers, elicit greater efforts from them and optimize a core of employees. Our finding, that the use of fixed-term contracts is correlated with lower labor costs, indicates that a more efficient mechanism to recruit and allocate labor may be in place. To produce this outcome, wages need not be discriminated. The reason being that firms can assign heterogeneous workers to perform heterogeneous tasks. Moreover, primary sector jobs (permanent employment) are conveniently rationed by employers to facilitate labor adjustments and provide work incentives.

Keywords: Segmentation; Dual; labor; market; Fixed-term; contracts; Primary; sector; Secondary; sector; Efficiency; wages; Screening; device (search for similar items in EconPapers)
Date: 1991-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2816

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