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Promoting permanent employment: lessons from Spain

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  • Ildefonso Mendez

Abstract

This paper analyzes whether the two major labor market reforms implemented in Spain in the 1990s to reduce the share of temporary employment succeed in promoting flows into permanent employment. The 1994 reform severely restricted temporary contracts and the 1997 reform introduced a new permanent contract figure with lower payroll taxes and dismissal costs than the ordinary. To evaluate these non-targeted treatments I present an estimation procedure that uses pre-treatment outcomes to predict the one that would have been otherwise observed in the post-treatment period in the absence of the treatment and I derive its large sample properties. Using data from the Spanish Labor Force Survey I find that both reforms failed at reducing the share of temporary employment because they had no impact on contract conversions, which account for most new permanent contracts. The 1997 reform succeed in increasing permanent hirings for some groups of workers. My findings suggest that Spanish employers took advantage of wage and dismissal cost reductions to substitute permanent contracts for otherwise temporary ones. Copyright The Author(s) 2013

Suggested Citation

  • Ildefonso Mendez, 2013. "Promoting permanent employment: lessons from Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 175-199, June.
  • Handle: RePEc:spr:series:v:4:y:2013:i:2:p:175-199
    DOI: 10.1007/s13209-012-0088-5
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    1. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, "undated". "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Working Papers 2003-14, FEDEA.
    2. J. Ignacio García-Pérez & Yolanda F. Rebollo Sanz, 2009. "The use of permanent contracts across Spanish regions: Do regional wage subsidies work?," Investigaciones Economicas, Fundación SEPI, vol. 33(1), pages 97-130, January.
    3. Alberto Abadie, 2005. "Semiparametric Difference-in-Differences Estimators," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 1-19.
    4. Guadalupe, Maria, 2003. "The hidden costs of fixed term contracts: the impact on work accidents," Labour Economics, Elsevier, vol. 10(3), pages 339-357, June.
    5. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, June.
    6. Alba-Ramirez, Alfonso, 1994. "Formal Training, Temporary Contracts, Productivity and Wages in Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 151-170, May.
    7. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
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    Cited by:

    1. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers wp2009_0911, CEMFI.
    2. International Monetary Fund, 2014. "Spain: Selected Issues," IMF Staff Country Reports 2014/193, International Monetary Fund.
    3. Roberto Serrano, 2009. "On Watson's Non-Forcing Contracts and Renegotiation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2350-2360.
    4. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
    5. Ruiz-Valenzuela, Jenifer, 2020. "Intergenerational effects of employment protection reforms," LSE Research Online Documents on Economics 104016, London School of Economics and Political Science, LSE Library.
    6. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
    7. Inmaculada Garcia & Colin Green & Maria Navarro Paniagua, 2012. "New Estimates of the Effect of Temporary Employment on Absenteeism," Working Papers 24151321, Lancaster University Management School, Economics Department.
    8. Yolanda Rebollo Sanz, 2009. "Landing a Permanent Contract: Do Job Interruptions and Employer Diversification Matter?," Working Papers 09.07, Universidad Pablo de Olavide, Department of Economics.
    9. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, and Debt Valuation," Working Papers wp2009_0902, CEMFI.
    10. Yolanda Rebollo Sanz & J. Ignacio García-Pérez, 2009. "Do wage subsidies affect the subsequent employment stability of permanent workers?: the case of Spain," Working Papers 09.18, Universidad Pablo de Olavide, Department of Economics.

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    More about this item

    Keywords

    Permanent employment; Dismissal costs; Payroll taxes; Inverse probability weighted estimation; Semiparametric methods; J32; J38; J65;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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