Competition for Jobs in a Growing Economy and the Emergence of Dualism

We aim to explain the rising share of short-term employment in Europe using a matching model with growth. We find that a slow-down in growth of labour productivity leads to the emergence of temporary (short-term) jobs that explains their increasing share in total employment. Lower growth rates also shift the "Beveridge curve" to the right and weaken the bargaining position of workers. These effects generate a relation between growth and unemployment, which can be negative when the adverse effect of growth on wage setting dominates over its positive effect on labour demand. In addition, higher population growth increases the share of temporary jobs and unemployment. Finally, the often blamed firing costs are found to be neutral when there is no floor on wages.