The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France

Olivier Blanchard and Augustin Landier

Economic Journal, 2002, vol. 112, issue 480, F214-F244

Abstract: We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed--term contracts may be perverse. The main effect may be high turnover in entry--level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off, going through many spells of unemployment and entry--level jobs, before obtaining a regular job. Considering French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, the effect on their welfare appears to have been negative. Copyright 2002 Royal Economic Society

Date: 2002
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