Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms

By Adriana D. Kugler, J. F. Jimeno, Virginia Hernanz. Social Science Research Network, 2002

208 citations recorded by the source corpus.

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. Results for older workers show insignificant effects. The results suggest a reasonably elastic response of permanent employment to nonwage labor costs for young workers. 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 nonemployment increased only for older men, suggesting that the reform had little effect on dismissals.

Subfields: Demography, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/9a6dfc05e9f02f7dd237994178406322a9f885ec

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Citations in the corpus

Do Employment Protections Reduce Productivity? Evidence from U.S. States (2007, unknown): “See Saint-Paul (2002) and Brügemann (2006) for theories on the political economy of employment protection. economic literature views employment protection through the lens of the Diamond-Mortensen- Pissarides equilibrium unemployment model (cf. Mortensen and Pissarides 1994; Kugler et al. 2003).”
Career Planning in Spain: Do Fixed-term Contracts Delay Marriage and Parenthood? (2005, background): “of the reform of 1997 on the hiring of workers (particularly young workers) on an indefinite basis, but the overall impact of these reforms has been found to be rather small (see Kugler et al. (2002) ).”
Employment Laws in Developing Countries (2009, unknown): “For example, Kugler et al. (2005) study the 1997 reform by the Spanish government to reduce the incidence of temporary employment by reducing payroll taxes and dismissal costs for permanent contracts.”
Setting It Right: Employment Protection, Labour Reallocation and Productivity (2011, background): “Along the same lines, Kugler et al. (2003) look at the effects of a reform in Spain in 1997, which lowered dismissal costs for older and younger workers, and find that it was associated with a relative increase in worker flows for these groups.”
Spanish Unemployment: The End of the Wild Ride? (2003, background): “Unemployment assistance (UA) pays 75% of the minimum wage to workers with 9See Kugler et al. (2002).”
Does Employment Protection Reduce Productivity? Evidence from US States (2007, unknown): “…Economic Society 2007 While many labour economists use this competitive model as a benchmark, much of the macroeconomic literature views employment protection through the lens of the Diamond-Mortensen-Pissarides equilibrium unemployment model (Mortensen and Pissarides, 1994; Kugler et al., 2003).”