Paying for Others' Protection: Causal Evidence on Wages in a Two-Tier System

Mario Centeno () and Alvaro A. Novo ()
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Mario Centeno: Banco de Portugal
Alvaro A. Novo: Banco de Portugal

No 8702, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In a segmented labor market, theory predicts that employment protection has an asymmetric impact on entry and incumbent wages. We explore a reform that increased the protection of open-ended contracts for a well-defined subset of firms, while leaving it unchanged for other firms. The causal evidence points to a reduction in wages for new open-ended and fixed-term contracts and no impact for more tenured workers. The reductions estimated for entrants oscillate between -0.9 and -0.5 p.p., covering a significant part of the expected increase in firing costs. Firms with larger shares of fixed-term contracts shifted the burden to these workers.

Keywords: wages; two-tier systems; quasi-experiment; employment protection (search for similar items in EconPapers)
JEL-codes: J31 J32 J63 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-12
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (13)

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