Edited by Ramón Gómez-Salvador, Ana Lamo, Barbara Petrongolo, Melanie Ward and Etienne Wasmer
Chapter 8: Matching Workers to Jobs on the Fast Lane: The Operation of Fixed-Term Contracts
8. Matching workers to jobs in the fast lane: the operation of ﬁxed-term contracts José M. Varejão and Pedro Portugal* 1 INTRODUCTION Typically, ﬁxed-term contracts give employers the opportunity to lay oﬀ workers at lower cost and with fewer restrictions than is the case for regular (permanent) workers. These two features are expected to make ﬁxed-term contracts a useful option for employers, particularly in labour markets where the costs of terminating a permanent contract are high. As such, ﬁxed-term contracts become a component of labour market ﬂexibility, one that seems particularly appropriate to adjust the level of the workforce to ﬂuctuations of labour supply and demand, expected or not. Many European governments have tried to reform the labour market, leaving existing contracts unchanged but reducing (or eliminating) ﬁring restrictions on new contracts. The focus on the ﬂexibility role of ﬁxed-term contracts has fuelled a debate about the quality of jobs and the opportunities for career advancement oﬀered to temporary workers. The concern is that workers with ﬁxedterm contracts are used as buﬀer stocks, insulating permanent workers from ﬂuctuations in labour demand. Should this be the case, temporary jobs should be expected to result in job loss, and workers should suﬀer from poor job security and receive little training, which would further harm their prospects of subsequently ﬁnding a better job. Another consequence of using ﬁxed-term contracts to avoid higher prospective ﬁring costs is that employment adjustment to shocks should be speeded up. However, in a study...
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