Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms

Juan J. Dolado, Salvador Ortigueira, Rodolfo Stucchi

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

This paper analyzes how changes in the firing-costs gap between permanent and temporary workers affect firms’ TFP in a dual labour market. We argue that, under plausible conditions, firms’ temp-to-perm conversion rates go down when this gap increases. Temporary workers respond to lower conversion rates by exerting less effort, while firms react by providing less paid-for training. Both channels lead to a decline in TFP. We test these implications in a large panel of Spanish manufacturing firms from 1991 to 2005, looking at the effects of three labour market reforms which entailed substantial changes in the firing-costs gap. Our empirical findings provide some support for the above-mentioned mechanism.

Original languageEnglish (US)
Pages (from-to)421-459
Number of pages39
JournalSERIEs
Volume7
Issue number4
DOIs
StatePublished - Nov 1 2016

Keywords

  • Firing costs
  • Firms’ TFP
  • Temporary contracts
  • Training
  • Workers’ effort

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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