Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147908
Authors: 
Martins, Pedro S.
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 10222
Abstract: 
Firms make labour demand decisions not only between permanent and non-permanent employees but also increasingly more between employees and contractors. Indeed, this third work format can be attractive, also when employment protection law is restrictive. This paper examines empirically this scarcely researched trade-off drawing on a recent reform in Portugal that cut the severance pay of new employee hires while leaving unchanged the regulations affecting contractors. Our analysis draws on difference-in-differences methods and original high-frequency firm-level panel data on both employees and contractors. We find that the reduction in severance pay had a large relative positive effect on the wage bills and worker counts of employees compared to contractors. This result, robust to a number of checks, highlights the role of labour regulations as an additional driver of more flexible labour formats.
Subjects: 
employment law
segmentation
duality
future of work
JEL: 
J23
J41
J63
Document Type: 
Working Paper

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