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Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms

Juan Dolado, Salvador Ortigueira () and Rodolfo Stucchi ()
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Salvador Ortigueira: University of Miami

SERIEs: Journal of the Spanish Economic Association, 2016, vol. 7, issue 4, 421-459

Abstract: Abstract This paper analyzes how changes in the firing-costs gap between permanent and temporary workers affect firms’ TFP in a dual labour market. We argue that, under plausible conditions, firms’ temp-to-perm conversion rates go down when this gap increases. Temporary workers respond to lower conversion rates by exerting less effort, while firms react by providing less paid-for training. Both channels lead to a decline in TFP. We test these implications in a large panel of Spanish manufacturing firms from 1991 to 2005, looking at the effects of three labour market reforms which entailed substantial changes in the firing-costs gap. Our empirical findings provide some support for the above-mentioned mechanism.

Keywords: Firms’ TFP; Workers’ effort; Training; Temporary contracts; Firing costs (search for similar items in EconPapers)
JEL-codes: C14 C52 D24 J24 J41 (search for similar items in EconPapers)
Date: 2016
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Related works:
Working Paper: Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms (2012) Downloads
Working Paper: Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms (2011) Downloads
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