 Contract employment as a worker discipline deviceArnab Basu, Nancy Chau and Vidhya Soundararajan Journal of Development Economics, 2021, vol. 149, issue C Abstract: Fixed-term labor contracting has increasingly replaced regular open-ended employment in developing countries. What justifies its emergence? What determines its intensity? What policy responses are appropriate, if any? In a two-tiered task-based model of the labor market, we demonstrate that within establishments, fixed-term contracting can indeed co-exist with open-ended efficiency wage contracts as it enables firms to enforce regular worker discipline at strictly lower cost. Furthermore, the intensity of fixed-term employment is shown to increase even in times of rising labor demand, if a fixed-term worker status does not increase the likelihood of regular job arrival. Using establishment-level data from Indian manufacturing, we find evidence consistent with such an assumption. Policy-wise, the model unveils two margins of hiring distortions associated with fixed-term employment – task assignment and total employment distortions —- against which the merits of a suite of oft-noted labor market flexibility policies can be assessed. Keywords: Fixed-term contract employment; Two-tiered labor markets; Self-enforcing contracts (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:149:y:2021:i:c:s0304387820301760 DOI: 10.1016/j.jdeveco.2020.102601 Access Statistics for this article Journal of Development Economics is currently edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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