Evidence from a Labor Market Reform in Spain (original) (raw)
This paper evaluates the effects on employment, job turnover and productivity of a la-bor market reform in Spain that eliminated dismissal costs for fixed-term or temporary contracts. Our empirical results are based on a panel of 2356 Spanish manufacturing firms for the period 1982-1993. We postulate and estimate a dynamic labor demand model with indefinite and fixed-term labor contracts, and a general structure of labor adjustment costs. Experiments using the estimated model show important positive ef-fects of the reform on total employment (i.e., a 3.5 % increase) and job turnover. There is a strong substitution of permanent by temporary workers (i.e., a 10 % decline in permanent employment). The effects on labor productivity and the value of a firm are very small. These effects contrast with the ones of a counterfactual reform consisting in halving firing costs of all type of contracts. That policy implies the same increase in total employment, but much larger improvements in pro...
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