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| Title: | | Fixed-term and permanent employment contracts: Theory and evidence  |
| Authors: | | Cao, Shutao Shao, Enchuan Silos, Pedro |
| Issue Date: | | 2011 |
| Series/Report no.: | | Bank of Canada Working Paper 2011,21 |
| Abstract: | | 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. |
| Subjects: | | Labour markets Potential output Productivity |
| JEL: | | H29 J23 J38 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bank of Canada Working Papers
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