Labour Supply and Incentives to Work in Europe
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Labour Supply and Incentives to Work in Europe

Edited by Ramón Gómez-Salvador, Ana Lamo, Barbara Petrongolo, Melanie Ward and Etienne Wasmer

Labour Supply and Incentives to Work in Europe highlights recent developments in the labour supply in Europe and gives a detailed assessment of their link with economic policies and labour market institutions. Despite major changes in European labour supply during the past few decades, the existing literature still lacks a comprehensive study of the relationship between labour supply and labour market institutions from a macro perspective.
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Chapter 8: Matching Workers to Jobs on the Fast Lane: The Operation of Fixed-Term Contracts

José M. Varejão and Pedro Portugal


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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