Fixed-term and permanent employment contracts: Theory and evidence

Arbeitspapier

This paper constructs a theory of the coexistence of fixed-term and permanent employment contracts in an environment with ex-ante identical workers and employers. Workers under fixed-term contracts can be dismissed at no cost while permanent employees enjoy labor protection. In a labor market characterized by search and matching frictions, firms find it optimal to discriminate by offering some workers a fixedterm contract while offering other workers a permanent contract. Match-specific quality between a worker and a firm determines the type of contract offered. We analytically characterize the firm's hiring and firing rules. Using matched employer-employee data from Canada, we estimate the model's parameters. Increasing the level of firing costs increases wage inequality and decreases the unemployment rate. The increase in inequality results from a larger fraction of temporary workers and not from an increase in the wage premium earned by permanent workers.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Working Paper ; No. 2011-21

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Other ; Labor Demand ; Wages, Compensation, and Labor Costs: Public Policy
• Subject: Labour markets ; Potential output ; Productivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cao, Shutao ; Shao, Enchuan ; Silos, Pedro
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2011

Further information

• DOI: doi:10.34989/swp-2011-21
• Handle: http://hdl.handle.net/10419/53907
• Last update: 10.03.2025, 11:41 AM CET