TITLE:
Employment Protection, Employers’ Hiring Strategies and the Screening Role of Temporary Contracts
AUTHORS:
Makoto Masui
KEYWORDS:
Temporary Contracts, Screening, Dismissal Costs, Hiring Policies
JOURNAL NAME:
Modern Economy,
Vol.7 No.7,
July
18,
2016
ABSTRACT: In this paper, we
develop a matching model with both permanent and temporary contracts to address
situations in which the quality of a match formed by a worker-firm pair is not
observable to both workers and firms. The screening and cost-saving aspects of
temporary employment contracts are two primary reasons that firms use them, but
screening has received little attention in the study of employment protection.
We show that increasing dismissal costs decreases job creation and that higher
dismissal costs are likely to reduce the hiring threshold for temporary jobs
and raise the threshold for permanent jobs. We also examine how changes in
dismissal costs affect the average productivity of permanent jobs and discuss
the effectiveness of the policy of increasing labour market flexibility by
weakening firing restrictions for permanent employment.