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Precarious and Less Well Paid? Wage Differences between Permanent and Fixed-term Contracts across the EU

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  • Silva, António Dias da

    (European Central Bank)

  • Turrini, Alessandro

    (European Commission)

Abstract

We analyse wage differences between permanent and fixed-term contracts across the EU using data from the European Structure of Earnings Survey. We find that, after controlling for individual and job characteristics, workers on permanent contracts earn on average about 15% more than workers on fixed-term contracts with similar observable characteristics. The permanent contract wage premium is higher for men, workers at middle age and with middle education, and performing non-elementary occupations. We also find that permanent workers enjoy a higher wage premium for education and age. We explore cross-country differences in the wage premium for permanent workers and correlate them with indicators of labour market institutions. In particular, results indicate that the wage premium is higher the stricter is employment protection for permanent contracts and the higher the share of temporary employment, which supports the view that workers with fixed-term contracts suffer from a negative wage gap due to lower bargaining power.

Suggested Citation

  • Silva, António Dias da & Turrini, Alessandro, 2015. "Precarious and Less Well Paid? Wage Differences between Permanent and Fixed-term Contracts across the EU," IZA Policy Papers 105, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp105
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    3. Cindy Biesenbeek & Maikel Volkerink, 2023. "The price of flexible jobs: Wage differentials between permanent and flexible jobs in The Netherlands," Working Papers 779, DNB.
    4. Cabo, Francisco & Martín-Román, Ángel L., 2017. "Dynamic collective bargaining. Frictional effects under open-shop industrial relations," MPRA Paper 77562, University Library of Munich, Germany.
    5. Stefan Jestl & Sandra M. Leitner & Sebastian Leitner, 2022. "The relative impact of different forces of globalization on wage inequality: A fresh look at the EU experience," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1003-1037, September.
    6. Lehner, Lukas & Ramskogler, Paul & Riedl, Aleksandra, 2022. "Begging thy coworker – Labor market dualization and the slow-down of wage growth in Europe," INET Oxford Working Papers 2022-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    7. Clémence Berson, 2018. "Fixed-Term Contracts and Labor Market Duality in France," De Economist, Springer, vol. 166(4), pages 455-476, December.
    8. Christos Koutsampelas, 2018. "Non-standard employment in Cyprus: Trends and policy responses," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 12(1), pages 41-58, June.
    9. Perugini, Cristiano & Pompei, Fabrizio, 2017. "Temporary Jobs, Institutions, and Wage Inequality within Education Groups in Central-Eastern Europe," World Development, Elsevier, vol. 92(C), pages 40-59.
    10. Giuseppe Lucio Gaeta & Giuseppe Lubrano Lavadera & Francesco Pastore, 2022. "The Effect of Job–Education Vertical Mismatch on Wages Among Recent PhD Graduates: Evidence From an Instrumental Variable Analysis," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 197-225, March.
    11. Francisco Cabo & Angel Martín-Román, 2019. "Dynamic collective bargaining and labor adjustment costs," Journal of Economics, Springer, vol. 126(2), pages 103-133, March.
    12. Yang, Guanyi, 2017. "General Equilibrium Evaluation of Temporary Employment," MPRA Paper 80047, University Library of Munich, Germany.
    13. Rahul Menon, 2019. "Short-term contracts and their effect on wages in Indian regular wage employment," The Economic and Labour Relations Review, , vol. 30(1), pages 142-164, March.
    14. Paola Naddeo, 2015. "The Wage Effects Of Fixed-Term Contracts," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 69(4), pages 63-72, October-D.
    15. Kosmas, Petros & Theocharous, Antonis & Ioakimoglou, Elias & Vatikiotis, Leonidas & Giannoulis, Petros & Panagopoulou, Maria & Lamprianou, Lamprianos & Andreev, Hristo & Vatikioti, Aggeliki, 2022. "Mapping and measuring the phenomenon of precariousness in Cyprus: challenges and implications," LSE Research Online Documents on Economics 117571, London School of Economics and Political Science, LSE Library.
    16. Ramskogler, Paul, 2021. "Labour market hierarchies and the macro-economy – Do labour market dualities affect wage growth in Europe?," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 154-165.
    17. Mussida Chiara & Zanin Luca, 2019. "Voluntary Mobility of Employees for Better Job Opportunities Given a Temporary Contract: Insights Regarding an Age-Varying Association Between the Two Events," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(2), pages 1-27, April.
    18. José M Arranz & Enrique Fernández-Macías & Carlos García-Serrano, 2021. "Wage differentials and segmentation: The impact of institutions and changing economic conditions," European Journal of Industrial Relations, , vol. 27(2), pages 203-227, June.
    19. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2880-2942.
    20. Petros Kosmas & Antonis Theocharous & Elias Ioakimoglou & Petros Giannoulis & Leonidas Vatikiotis & Maria Panagopoulou & Lamprianos Lamprianou & Hristo Andreev & Aggeliki Vatikioti, 2022. "Mapping and measuring the phenomenon of precariousness in Cyprus: challenges and implications," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 175, Hellenic Observatory, LSE.

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    More about this item

    Keywords

    segmentation; wage premium; contract type;
    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
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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