Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142392
Authors: 
Dolado, Juan J.
Lalé, Etienne
Siassi, Nawid
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9953
Abstract: 
This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market where employment protection is highly discontinuous. We develop a computationally tractable approach to compare two economic environments: one with a large employment protection gap after a short tenure, and another one with a SOEC featuring a smooth tenure profile. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a labour market with dual employment protection. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.
Subjects: 
single contract
employment protection
dualism
labour market reform
JEL: 
H29
J33
J65
Document Type: 
Working Paper

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