Human Capital Mix and Temporary Contracts: Implications for Productivity and Inequality

That human capital reduces inequality and increases productivity is a well-established result. Both links depend on the mix of human capital that individuals accumulate, i.e. on whether it is more specific or general. This paper fills a gap in the literature trying to measure whether workers accumulate disproportionally more general human capital than specific one. We exploit the temporary/permanent contract divide to measure the general/specific mix. In fact, theoretical considerations suggest that workers holding temporary contracts accumulate more general human capital than workers under permanent contracts. Using longitudinal matched employer-employee data, we find empirical support for this hypothesis, by showing that dismissed temporary workers are more likely to change economic sector than comparable workers losing their open-ended jobs. As labor market deregulation concerns raising shares of the workforce in all advanced economies, we should expect that future societies will increasingly rely on general skills rather than specific ones. This has implications for both inequality and productivity.