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Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms

Adriana Kugler, Juan F Jimeno () and Virginia Hernanz

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Temporary employment contracts allowing unrestricted dismissals were introduced in Spain in 1984 and quickly came to account for most new jobs. As a result, temporary employment increased from around 10% in the mid-eighties to more than 30% in the early nineties. In 1997, however, the Spanish government attempted to reduce the incidence of temporary employment by reducing payroll taxes and dismissal costs for permanent contracts. In this paper, we use individual data from the Spanish Labor Force Survey to estimate the effects of reduced payroll taxes and dismissal costs on the distribution of employment and worker flows. We exploit the fact that recent reforms apply only to certain demographic groups to set up a natural experiment research design that can be used to study the effects of contract regulations. Our results show that the reduction of payroll taxes and dismissal costs increased the employment of young workers on permanent contracts, although the effects for young women are not always significant. Results for older workers show insignificant effects. The results suggest a moderately elastic response of permanent employment to non-wage labor costs for young men. We also find positive effects on the transitions from unemployment and temporary employment into permanent employment for young and older workers, although the effects for older workers are not always significant. On the other hand, transitions from permanent employment to non-employment increased only for older men, suggesting that the reform had little effect on dismissals.

Keywords: Temporary employment; dismissal costs; payroll taxes; European unemployment (search for similar items in EconPapers)
JEL-codes: J23 J32 J38 J63 J65 (search for similar items in EconPapers)
Date: 2002-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

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Related works:
Working Paper: Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms (2003) Downloads
Working Paper: Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms (2002) Downloads
Working Paper: Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms Downloads
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