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

Juan J. Dolado ^[1] ; Salvador Ortigueira ^[2] ; Rodolfo Stucchi ^[3]
1. [1] European University Institute
  
  European University Institute
  
  Firenze, Italia
2. [2] University of Miami
  
  University of Miami
  
  Estados Unidos
3. [3] Inter-American Development Bank, Washington, D.C., USA
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Localización: SERIEs : Journal of the Spanish Economic Association, ISSN 1869-4195, Vol. 7, Nº. 4, 2016, págs. 421-459
Idioma: inglés
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Resumen
- This paper analyzes howchanges 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.