How do firms use fixed-term contracts?

Matteo Sartori (), Marco Guido Palladino () and Eliana Viviano
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Matteo Sartori: Bank of Italy
Marco Guido Palladino: Banque de France, IZA

No 1543, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper examines how Italian firms use fixed-term contracts (FTCs) and documents the relative importance of seasonal needs, worker screening and buffer-stock motives. Using matched employer–employee data for 2013–2017 merged with firm-level balance-sheet information, we select a set of firms that systematically rely on temporary employment, generating over 85 per cent of its total volume. By focusing on these firms, we show that two ex ante contract features - the seasonal label and the initial duration - are highly informative about firms' hiring intentions. Use of seasonal contracts is limited and concentrated in a narrow set of sectors, while longer initial durations strongly predict conversion into permanent jobs, reflecting screening behaviour driven mainly by firm-specific factors. In contrast, most FTCs are short, non-seasonal and concentrated in firms dealing with lower productivity and higher revenue volatility, consistent with buffer-stock adjustment. A clustering exercise confirms that about 10 per cent of firms predominantly use seasonal contracts, one fourth use FTCs for screening, and roughly 65 per cent rely on them to manage uncertainty.

Keywords: fixed-term contracts; screening; contract conversions; seasonal workers; productivity (search for similar items in EconPapers)
JEL-codes: J23 J41 J63 L23 (search for similar items in EconPapers)
Date: 2026-07
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