Fixed-Term and Permanent Employment Contracts: Theory and Evidence

Shutao Cao, Enchuan Shao and Pedro Silos

No 3150, CESifo Working Paper Series from CESifo

Abstract: This paper constructs a theory of the coexistence of fixed-term and permanent employment contracts in an environment with ex-ante identical workers and employers. Workers under fixed-term contracts can be dismissed at no cost while permanent employees enjoy labor protection. In a labor market characterized by search and matching frictions, firms find optimal to discriminate by offering some workers a fixed-term contract while offering other workers a permanent contract. Match-specific quality between a worker and a firm determines the type of contract offered. We analytically characterize the firm’s hiring and firing rules. Using matched employer-employee data from Canada, we estimate the wage equations from the model. The effects of firing costs on wage inequality vary dramatically depending on whether search externalities are taken or not into account.

Keywords: employment protection; unemployment; dual labor markets; wage inequality (search for similar items in EconPapers)
JEL-codes: H29 J23 J38 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Fixed-Term and Permanent Employment Contracts: Theory and Evidence (2011)
Working Paper: Fixed-Term and Permanent Employment Contracts: Theory and Evidence (2011)
Working Paper: Fixed-term and permanent employment contracts: theory and evidence (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3150

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