What policy to reduce labour market segmentation?

Clémence Berson and N. Ferrari

Rue de la Banque, 2016, issue 35

Abstract: The French labour market is segmented between those with stable jobs and those alternating temporary contracts and periods of unemployment. This Rue de la Banque looks at the different policies aimed at reducing this duality. It shows that contributions that decrease in line with seniority or a tax on contract terminations reduce the share of short-term contracts in the economy, but at the cost of a more rigid labour market and lower productivity. An over-contribution on temporary jobs, financing a premium for hiring on permanent contracts, also reduces the segmentation of the labour market; however, it does not have these adverse effects on labour market flexibility and productivity. Introducing a premium to reduce segmentation is therefore more desirable than a tax in order to preserve the flexibility of the labour market.

Date: 2016
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