Abstract
This paper analyzes whether the two major labor market reforms implemented in Spain in the 1990s to reduce the share of temporary employment succeed in promoting flows into permanent employment. The 1994 reform severely restricted temporary contracts and the 1997 reform introduced a new permanent contract figure with lower payroll taxes and dismissal costs than the ordinary. To evaluate these non-targeted treatments I present an estimation procedure that uses pre-treatment outcomes to predict the one that would have been otherwise observed in the post-treatment period in the absence of the treatment and I derive its large sample properties. Using data from the Spanish Labor Force Survey I find that both reforms failed at reducing the share of temporary employment because they had no impact on contract conversions, which account for most new permanent contracts. The 1997 reform succeed in increasing permanent hirings for some groups of workers. My findings suggest that Spanish employers took advantage of wage and dismissal cost reductions to substitute permanent contracts for otherwise temporary ones.
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Acknowledgments
I would like to thank Samuel Bentolila for advice, patience and encouragement. I am grateful for useful comments to Pedro Albarrán, Manuel Arellano, Stephane Bonhomme, Olympia Bover, María Dolores Collado, Juan José Dolado, Pedro Jesús Hernández, Juan Francisco Jimeno, Ángel López, Jorge E. Martínez, Pedro Mira, Ernesto Villanueva and seminar participants at CEMFI and University of Murcia. All remaining errors are my own.
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Mendez, I. Promoting permanent employment: lessons from Spain. SERIEs 4, 175–199 (2013). https://doi.org/10.1007/s13209-012-0088-5
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DOI: https://doi.org/10.1007/s13209-012-0088-5
Keywords
- Permanent employment
- Dismissal costs
- Payroll taxes
- Inverse probability weighted estimation
- Semiparametric methods