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Moving towards a Single Labour Contract: Transition vs. Steady-state

Juan Dolado, Etienne Lalé () and Nawid Siassi ()

No 11030, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market with dual employment protection. We develop a computationally tractable approach to compare two economic environments: one with flexible entry-level jobs and high employment protection at longer tenures, and another one with a SOEC featuring employment protection levels that increase smoothly with tenure. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a dual labour market. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.

Keywords: dualism; employment protection; labour market reform; single contract (search for similar items in EconPapers)
JEL-codes: H29 J33 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma
Date: 2015-12
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