The Third Worker: Assessing the Trade-off between Employees and Contractors

Pedro Martins

No 10222, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Firms make labour demand decisions not only between permanent and non-permanent employees but also increasingly more between employees and contractors. Indeed, this third work format can be attractive, also when employment protection law is restrictive. This paper examines empirically this scarcely researched trade-off drawing on a recent reform in Portugal that cut the severance pay of new employee hires while leaving unchanged the regulations affecting contractors. Our analysis draws on difference-in-differences methods and original high-frequency firm-level panel data on both employees and contractors. We find that the reduction in severance pay had a large relative positive effect on the wage bills and worker counts of employees compared to contractors. This result, robust to a number of checks, highlights the role of labour regulations as an additional driver of more flexible labour formats.

Keywords: employment law; segmentation; duality; future of work (search for similar items in EconPapers)
JEL-codes: J23 J41 J63 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016-09
New Economics Papers: this item is included in nep-eur, nep-hrm, nep-law and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://docs.iza.org/dp10222.pdf (application/pdf)

Related works:
Working Paper: The third worker: Assessing the trade-off between employees and contractors (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp10222

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().