Labour Markets, Institutions and Inequality
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Labour Markets, Institutions and Inequality

Building Just Societies in the 21st Century

Edited by Janine Berg

Labour market institutions, including collective bargaining, the regulation of employment contracts and social protection policies, are instrumental for improving the well-being of workers, their families and society. In many countries, these institutions have been eroded, whilst in other countries they do not exist at all.
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Chapter 6: Temporary contracts and wage inequality

Sandrine Cazes and Juan Ramón de Laiglesia


One of the key features of labour market developments over the last 25 years has been the increase in the share of temporary employment in most advanced countries as well as in emerging countries. Temporary employment takes multiple forms across countries, the most common of which are fixed-term contracts – which have a definite duration – and temporary agency work. The expansion of those temporary forms of employment has both social and economic implications: the extensive use of temporary contracts has been singled out as contributing to dysfunctions in labour market performance, notably in terms of labour market segmentation (Doeringer and Piore, 1971; Reich et al., 1973). Segmented labour markets are characterized by inequalities in labour market outcomes across submarkets or segments, as well as low rates of transition of workers from one segment to another. Most of the time, having a temporary contract means having a job with lower quality, with reduced (if any) access to training and fringe benefits, such as paid sick leave, unemployment insurance and retirement pension, higher insecurity due to reduced protection in case of termination of the employment relationship and often lower pay and fewer prospects of upward mobility. Beyond equity concerns, segmented labour markets may also induce suboptimal outcomes from an efficiency viewpoint. Indeed, highly segmented labour markets are also associated with large adjustments in employment levels during recessions, increasing the volatility of labour markets with possible negative effects on productivity (Dolado et al., 2011).

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