In addition, anti discrimination law can be used to secure protection for such teachers.
Fixed-term contract usage very commonly has a disproportionate impact on women teachers who for a variety of social and other reasons tend to predominate amongst fixed-term contract holders. The Union has previously established in the courts that this effect is unlawful if there is no objectively justified reason for fixed-term contract usage. The same protection may also be available on racial grounds for teachers working in sectors of the education service where ethnic minority teachers predominate e.g. in the EMAG services. No qualifying period of employment is necessary to benefit from this protection.
though differentials are smaller for women and most of the differential can be explained by different characteristics (de la Rica and Felgueroso 1999, Davia and Hernanz 2001 and for an overview see Dolado et al. 2002).
However, it is possible that these initial estimates are affected by unobserved differences between individuals. So, now we introduce individual fixed effects which are detected by the Hausman test to be superior to estimating random effects models. Looking at specification I, we first of all see that East and West German differentials converge roughly towards 0.06 for men and 0.03 for women. Obviously differentials between east and west but also between contracts types decrease. In the case of East German women contract type differences even disappear. Similar patterns have been reported by Booth et al. (2002) estimating fixed effects for the United Kingdom. This indicates that workers on fixed-termcontracts are on average different from those on open-ended contracts. Such differences might, for example, be caused by diverse labour market experiences or ability: those workers who start off in worse jobs or more importantly have less unmeasured ability are found to experience a less successful career.
a job o¤er. This job o¤ers e¤ect seems to be very strong in my data. A possible reason why the cited works on Spain may di¤er on the e¤ect of UI is the treatment given to the unemployment duration variable. 35
The other new variable included in this second part of the analysis is a dummy that equals 1 if the reason for separation from the previous job was the ending of a TC. As can be seen in table 6, the estimated coe¢cient on this variable is positive and signi…cant. This result accords with the idea that TCs have isolated some of the unemployed, making them more employable than the other unemployed. I investigate this issue further by estimating a model in which every variable is interacted with this dummy (see table 7). As can be seen, those jobless workers who are unemployed because their TC came to an end have less duration de- pendence than the other unemployed (this includes voluntary quits, redundancy, retirement, illness, etc.). Canziani and Petrongolo (2001) estimate a semi-parametric duration model using the panel version of the Spanish Labor Force Survey data for the years 1987–1996 and also …nd that those jobless workers whose TC ended have higher re-employment prob- abilities. Jenkins and García-Serrano (2000) using data from the national unemployment bene…t administration database …nd that those who entered UI from a TC have much higher re-employment probabilities than those whose contract was a permanent one.
One possible shortcoming of the model is that we assume the shock θ to be station- ary, while the productivity of the firms in our empirical data may be non stationary.
However, we argue that this is not likely to be a problem in interpreting the results of the model and the empirical analysis, for at least three reasons. First, the time series dimension of the empirical data is very short, and therefore nonstationarity is not likely to significantly bias the empirical results. Second, in the model the shock θ P i,t is stationary but very persistent, and the entry-exit of firms generate growth dynam- ics very similar to the dynamics observed in the data, because all firms are created small, and conditional on surviving they increase in size and become less financially constrained. In fact the simulated industry matches well the average growth rate of employment at the firm level observed in the data. Third, in Appendix 3 we illustrate in detail the implications of assuming a non stationary shock θ. We show that the predictions of the model regarding the optimal ratio between fixed-term and perma- nent workers are not aﬀected by this change, while the eﬀect on the other predictions of the model is likely to be small and accounted for by the control variables included in the empirical analysis in the next section.
more annual labor income is devoted to building wealth in households where the householder or second income earner has a fixed-term job than in households where the householder or second income earner has an indefinite contract.
With respect to employment, the existence of fixed-termcontracts may increase rotation of workers from unemployment to employment and vice versa, but it also affects the probability of exiting unemployment. Firstly, fixed-termcontracts may increase the overall level of employment in upward cycles and reduce it in declining economic cycles. secondly, fixed-termcontracts may have effects on the probability of exiting unemployment. güell (2000) found that in spain, the introduction of fixed-termcontracts changed the distribution of the duration of unemployment, increasing the unemployment duration of the long-term unemployed and reducing that of the short-term unemployed, because the short- term unemployed are preferred by employers. Moreover, the existence of fixed-termcontracts allows firms to replace indefinite-contract workers by fixed-term ones, in which case, there is no increase in the total level of employment.
disadvantages of fixedtermcontracts employees in any discrimination based upon execution of labor? Agreement to the advantages disadvantages fixedcontracts employees often used as an employee, including the disadvantages of science in the state that on the terms of employees. Fullest extent that the disadvantages of fixedtermcontracts employees may not permanent? Notices about by the advantages and disadvantages of fixedterm employment contracts can specify a legal benefits. Weighing some state of advantages of term for employees stick to cope with employment agreement last thing of fixedterm contract to prevent claims arising in good of failure. Incur in charge of advantages and disadvantages of fixed for employees working with a routine went out? Salaries often means the advantages disadvantages of fixedcontracts for the drawbacks as wages for a limited term employees can work we are. Area and take these advantages and disadvantages of fixedcontracts for employees must agree with a valid too soon if the world. Teams of advantages and disadvantages fixed for employees on a contract of employment with labor? Mitigate the advantages and disadvantages term for employees in your own clients that means that the other roles, and all of time they perform differently than the change. Key employees also the advantages of fixedterm for employees have family status, in each worker or mobile phone. Requirements and flexibility of advantages of fixedtermcontracts for employees have? Experienced employment can of advantages and fixedtermcontracts for themselves with increased productivity and leave an agreement provides excellent flexibility. Websites and also the advantages and disadvantages of term for employees before entering into the parties believe a needed. Wish to seek the advantages disadvantages of fixedtermcontracts, an outbound link to make from the more. Remind yourself that the advantages disadvantages fixed for employees can also decreases at work set of the official online payment of this may make it. Clients and employment of advantages and disadvantages of contracts for employees may make future? Was not to pay advantages disadvantages fixedtermcontracts as the dismissal. Outlined in most of advantages and
In Chapter 2, the effects on employment of introducing fixed-term con
tracts in an economy with only permanent contracts are analysed. This
“pre-reform” economy works like the one described in Chapter 1, where fir
ing costs reduce employment. The objective of this chapter is to understand the apparent lack of success of fixed-termcontracts, especially in bringing down the level of unemployment, despite the wide use of these contracts by most employers. We have used an efficiency wage model to investigate this issue theoretically. This family of models are best suited for introducing two types of contracts, and to analyze them in a tractable manner. At the same time, these models highlight an important difference between both contracts, th at is, their duration. The main contribution of carrying out this analysis is th at wages are endogenous, overcoming the shortcut of the first works on these issues where wages were fixed7. It is often stated that the reason for introducing fixed-termcontracts is that this is “the price to pay to get full employment”. Our findings are that higher employment at the expense of segmentation of the labour market only arises if wages are completely flexible.
IUSLabor 1/2017 [Author]
workers than it is for workers above the age of 25 (30.7% to 10.1%) and more common among women than men (14.0% to 12.6%).
There are significant legal consequences that flow from a contract being temporary rather than permanent. The most important is in regard to the cost of terminating employment. Absent wrong doing justifying immediate dismissal, permanent employees can only be terminated by the provision of notice or pay in lieu of notice and, in some cases, severance. Statutes establish minimum notice and severance entitlements, but common law will frequently imply significantly longer notice periods. The employment of temporary employees ends in accordance with the terms of the contract and there is no need to provide notice or pay in lieu of notice at common law or by statute. However, statutory severance payments may be required if the term of the contract is sufficiently long to qualify, although in practice this would be highly unusual. Overall, temporary employment substantially reduces the cost of shedding employees and thus is extremely attractive to employers who do not wish to make long- term commitments to employees. 4
portion of the ¯rm's workforce with tenure less than two years and between two and ¯ve years (tenure longer than ¯ve years being the omitted category) reveal an interesting pattern. Firms with a larger share of low-tenured workers, presumably those with a larger share of employees with ¯xed-termcontracts, are the ones that convert ¯xed-termcontracts to permanent ones less frequently. This may simply indicate that ¯rms wait until the maximum legal duration of ¯xed-termcontracts to convert them into open-ended contracts. But, this result can also indicate that, for some ¯rms at least, churning may be a structural component of their sta±ng policies. The estimates obtained for the set of industry dummies also indicate that such use of ¯xed-termcontracts may have a precisely de¯ned sectoral scope. The two industries identi¯ed above as the most intensive users of ¯xed-termcontracts - construction and wholesale and retail trade and restaurants and hotels - are also the ones that o®er fewer permanent contracts to their temporary workforce.
conclusive proof that the employee could not reasonably have expected the contract to be renewed.” 1
In University of Cape Town v Auf der Heyde 2 , the court held that the facts of the matter did not demonstrate that the employee could have had a reasonable expectation of renewal or extension of his fixedterm contract. Mr Heyde was employed as a lecturer on a three year contract. The post was advertised as a three year contract, with a possible extension to five years. Although the advertisement provided that a possibility existed for the contract to be extended to 5 years, this was not in itself enough to establish a reasonable expectation. The University did not represent to Heyde in any way that there was a possibility that his contract would be extended or that permanent employment would be offered to him. When Heyde prodded the university prior to the end of his contract, at a time when a permanent position became available, their reaction made it clear that he could expect nothing other than to be considered for the post if he applied for it. The court was not convinced that a reasonable expectation existed and held that there was no dismissal based on the facts.
This result holds for two diﬀerent parametrizations of the economy, in addition to the baseline calibration. The first one has low separation taxes, with τ of half the value used so far (τ = 1/2 year of average wages). This case is interesting because, as explained in Alvarez and Veracierto (1986), we set the model firing taxes to the value of separation taxes that include transfers from firms to workers (severance payments), but a fraction of these transfers could potentially be undone by private contracting between firms and workers. The second parameterization has a linear production function (α = 1, so F (E, z) = z E). This case is interesting because we use a production function where labor is the only mobile factor, and hence the labor share and its returns to scale cannot be separately identified. If there were other factors besides labor that were mobile across locations (such as capital), the degree of decreasing returns would be much lower. For each of the two additional cases, we recalibrate the economy with firing taxes (J = 1) to the same observations as before, introduce temporary contracts of three-year length (J = 12 ), and evaluate the eﬀects on the unemployment rate and welfare. Rows 1—3 and 5-6 of Table 1 report the values for the unemployment rate and welfare for each of the cases. Rows 4 and 7 report the fraction of the gap (i.e., the diﬀerence in the statistics between the benchmark and laissez-faire cases) that the introduction of the temporary contracts closes. Rows 4 and 7 show that, in all cases, a labor market reform that replaces firing taxes with temporary contracts of three-year length achieves more than 40 percent of the potential welfare gains of labor market reform and more than 50 percent of the increase in the unemployment rate. 13
In this article we take a different approach to the same problem. We pose four questions to which we offer clear evidence obtained from one longitudinal matched employer-employee dataset. These questions are: (i) which employers use tem- porary contracts?; (ii) which employees are hired with temporary contracts?; (iii) which employers convert temporary contracts to permanent?; (iv) which employees get promoted from temporary to permanent positions? By looking simultaneously at the employer and the employee sides and at the hiring and promotion stages, we will be able to produce evidence that answers these four questions and sheds light on how and why employers use fixed-termcontracts. Our interest is in how human capital intensity, in terms of the skill-structure of the workforce and firm- provided training, shapes the employer decision vis-`a-vis temporary contracts. Direct evidence on vacancies and replacement hires will also be considered. From the employee-side, educational attainment and labor market experience are the main focus of our attention. The timing of contract conversion is also of interest. We also depart from previous studies of the same issue by using a different type of data. Whereas previous studies use employee data obtained from domestic Labor Force Surveys, we use matched employer-employee data. Our data is for Portugal.
Having estimated the vector of structural parameters, we perform two experiments. In the first experiment, we use the model to assess the impact of firing costs on income inequality. We find that a 50% increase in the level of firing costs increases the standard deviation of the wage distribution by 20%. This rise in inequality is due entirely to the increase in the fraction of temporary workers, which earn relatively lower wages. It is not due to an increase in the “permanent worker premium”, the ratio of the wage a permanent worker earns relative to that a temporary worker. The fraction of tem- porary workers rises with firing costs because their relative price drops; permanent workers are more expensive since undoing a permanent match costs more. The wage premium changes little because on the one hand, employers want to hire high pro- ductivity permanent workers (to avoid having to hire them and pay the cost), but on the other hand it is more costly to destroy existing matches, even when workers have relatively low productivity. We also find that an increase in the firing costs lowers the degree of turnover (it lowers both destruction and creation rates) but it decreases the unemployment rate. The second experiment involves evaluating the welfare impact of introducing temporary contracts, starting from an economy with firing costs. Reforms of that type were introduced in some European countries in the 1980s and 1990s. 1 The increase in welfare that results from such a policy change is caused by a decrease in the unemployment rate; some workers that would otherwise be unemployed are now employed as firms are more willing to post vacancies when temporary contracts are
Fixed-Term and Permanent Employment Contracts: Theory and Evidence
The existence of two-tiered labor markets in which workers are segmented by the degree of job protection they enjoy is typical in many OECD countries. Some workers, which one could label temporary (or fixed-term) workers, enjoy little or no protection. They are paid relatively low wages, experience high turnover, and transit among jobs at relatively high rates. Meanwhile, other workers enjoy positions where at dismissal the employer faces a firing tax or a statutory severance payment. These workers’ jobs are more stable; they are less prone to being fired, and are paid relatively higher wages. The menu and structure of available contracts is oftentimes given by an institutional background who seeks some policy objective . Workers and employers, however, can choose from that menu and agree on the type of relationship they want to enter.
We take the case with no fixedtermcontracts and large firing costs as our benchmark and calibrate it to reproduce a stylized version of the Spanish economy before the 1984 reform. We use this calibrated version to evaluate to what extent fixedtermcontracts of diﬀerent lengths add flexibility to the labor market. For large values of J, fixedtermcontracts are equivalent to the laissez-faire case, since for large J most workers will be temporary, and hence if they were dismissed they will be zero separation costs. Thus, we phrase the question of the added flexibility by computing how much of the gap between the firing tax and the laissez-faire cases is closed when fixedtermcontracts of empirically reasonable length are introduced. We find that even when the firing tax τ is small, introducing temporary contracts of a short length J sharply increases the average firing rate and decreases the average duration of unemployment. Nevertheless, for firing taxes of about a year of average wages (the value that we argue corresponds to Spain during the eighties) unemployment rate, productivity and welfare change smoothly with J. For instance, the unemployment rate is 2.4 percent points higher in laissez-faire than in the benchmark case of firing taxes (and no temporary contracts). With temporary contracts of three years duration, the length of contracts after the 1984 reform in Spain, we find that the unemployment rate is 1.25 percentage points higher than in the benchmark case. We also find that the welfare cost of firing taxes is about 2.5 percentage points in the benchmark case (in perpetual consumption equivalent units), while the welfare cost of temporary contracts of three years of length is about 1 percent. Thus temporary contracts of 3 years provide substantial flexibility, closing more than half of the gap between the benchmark and laissez-faire cases.
The paper does not examine the social or policy goals that lead some societies to establish firing costs or to regulate to some degree the relationships between workers and employers. Rather, we build a framework in which the menu of possible contracts is given by an institutional background that we do not model explicitly. We then use this framework to evaluate under what conditions employers and workers enter in to temporary or permanent relationships. Not addressing the reasons for why governments introduce firing costs does not preclude us from making positive statements about the effects of changing those firing policies. This is precisely the goal of the second part of the paper: to quantitatively evaluate how the existence of firing costs helps shape the wage distribution. To perform this quantitative evaluation, we apply the theory to the economy of Canada. We choose to study the Canadian economy for two reasons. First, it has a rich enough dataset that allows us to distinguish workers by type of contract. Second, it is an economy with a significant amount of temporary workers who represent 14% of the total workforce. We use the Workplace and Employee Survey (WES), a matched employer- employee dataset, to link wages of workers to average labor productivities of the firms that employ them. This relationship, together with aggregate measures of turnover for permanent and temporary workers also obtained from the WES, forms the basis for our structural estimation procedure. We employ a simulated method of moments - indirect inference approach to structurally estimate the parameters of the model. The method uses a Markov Chain Monte Carlo algorithm proposed by Chernozhukov and Hong (2003) that overcomes computational difficulties often encountered in simulation-based estimation.
If Ez/r ≥ α, a no-end temporary contract is expected to be profitable considering the impact of productivity shocks throughout its existence. Therefore, if the immediate surplus of a new match - namely the surplus before any productivity shock hits - is not too low, a zero probability of destruction is optimal. Otherwise, an immediate destruction is preferable and an infinite probability of destruction is chosen. Conversely, if Ez/r < α, a no-end temporary contract has an expected negative surplus after a productivity shock. This encourages firms to shorten the stipulated durations of temporary contracts in order to avoid productivity shocks. Intuitively, if the productivity of the match is neither too low nor too high to opt for an infinite or zero probability of job destruction, there is room for optimization in terms of durations. The contract must be long enough to benefit from the current level of productivity but short enough to avoid losses associated with a productivity shock, which is expected to be detrimental. In that respect, an increase in the probability of shock occurrence pushes up the destruction probability for a given z. Moreover, the probability of destruction decreases with the productivity of the firm-worker pair. Importantly, proposition 5 and its ramifications are still valid if the match chooses the duration instead of the destruction probability of a temporary contract as is the case in Cahuc et al. (2016).
of severance pay set by law is also modest, typically 1/10 of a month per year of work, plus 1/15 of a month for years above 10 years. But sectoral agreements typically set higher amounts, and ¯rms perceive the costs to be even higher, because of the administrative and legal steps required to go through the process. The monetary equivalent of these costs (which are indeed waste from the point of view of ¯rms and workers) is hard to assess, but severance packages o®ered by ¯rms in exchange for a quick resolution are typically much more generous than the legal or the contractual minimum. 13 Since the late 1970s, successive governments have tried to reduce these costs by introducing ¯xed-termcontracts, called \Contrats µ a dur¶ ee deter- min¶ ee", or CDDs. These contracts still require a severance payment, but eliminate the need for a costly administrative and legal process. 14
■ The type of contract used is not a useful indicator of the quality of the post
It is important to stress that understandings and measures of the quality of research jobs need to become much more nuanced to reflect an increasing diversity of practices and contexts. Fixed-term jobs are commonly equated with poor employment conditions and insecure employment, whereas open-ended contracts are assumed to be higher quality and more secure. However, as measures are taken to improve the quality of fixed-term jobs and, by the same token, as open- ended contracts are used more readily to employ researchers, the importance of looking beyond these labels in order to make a judgement about the quality of a post is underlined. Experiences of these different contractual forms are shaped by a range of management practices, working cultures, broader labour market conditions and the career stage or intention of the individual. In terms of job security, the risk of redundancy becomes a more useful indicator than the question of whether a post is fixed-term or open-ended. In some contexts, particularly where researchers are early career researchers, an emphasis is increasingly placed on the importance of making transitions from research positions into other posts either within the HE sector or in other sectors. Here it is envisaged that, whilst the research position may be insecure, broader employment security can be achieved through a combination of developing the skills and employability of the researcher and there being available a range of
The results from Panel A indicate a large and significant PT/FT hourly wage gap ranging between 6 and 8 percentage points. This gap can be interpreted as a quick drop in wages associated with PT work. Interestingly, this wage differential is almost as large for women working under a fixed-term contract than for those under a permanent contract, suggesting that, on average, having a permanent contract does not protect women against the negative wage effects of PT work. Likely reasons for wages growing less in PT jobs are that working in these jobs may involve less training, less possibilities to reach managerial positions and fewer chances to stand out by managing projects or doing extra work. Our econometric model allows for the possibility that the wage effect of PT under fixed-termcontracts is not just the combination of PT under a permanent contract and FT under a fixed- term contract but that PT under a fixed-term contract involves its own - potentially different - wage effect. It turns out that the effect of PT under a fixed-term contract does not differ strongly from the effect of PT under a permanent contract, but differs a lot from the wage effect of FT under a fixed-term contract. If we compare the PT/FT wage differential within contract types, we find a higher PT/FT wage differential among fixed-term workers than among permanent workers, as found by Fernández-Kranz and Rodríguez-Planas (forthcoming).