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Reassessing Labor Market Reforms: Temporary Contracts as a Screening Device

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  • Renato Faccini

Abstract

Standard models of temporary contracts are either inconclusive, or fail to account for the positive correlation between temporary contracts and the employment rate, and for the high transition rates into permanent employment measured in Europe. This paper shows that a matching model in which firms use temporary contracts to screen workers for permanent positions can successfully fulfill this task. When the model is calibrated to the Italian economy, it accounts for salient statistics including the worker turnover rate, the transition rates into permanent employment, and the drop in the unemployment rate following the reforms implemented in the late 1990s. When temporary contracts are used as a screening device, they can increase both productivity and welfare. Their quantitative impact crucially hinges on dismissal costs and minimum wages.

Suggested Citation

  • Renato Faccini, 2008. "Reassessing Labor Market Reforms: Temporary Contracts as a Screening Device," Economics Working Papers ECO2008/27, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2008/27
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    More about this item

    Keywords

    job-search; temporary contracts; labor market institutions; screening; hiring procedures; turnover rates; wage di¤erentials.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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