Dual returns to experience

This paper studies how labor market duality affects human capital accumulation and the wage trajectories of young workers in Spain. Using rich administrative data, we follow workers from their entry into the labor market to measure the experience accumulated under different contractual arrangements and we estimate their wage returns. We document lower returns on experience accumulated under fixed-term contracts compared with permanent contracts and show that this difference is not due to unobserved firm heterogeneity or the quality of the matching. Instead, we provide evidence that the gap in returns is due to lower human capital accumulation while working under fixed-term contracts. This difference widens with worker skill, suggesting that experience and skill-learning are complementary. Our results suggest that the widespread use of fixed-term work arrangements reduces the skill acquisition of highly-skilled workers, holding back life-cycle wage growth by up to 16 percentage points 15 years after their entry into the labor market.