DP7055 Do Temporary Contracts Affect TFP? Evidence from Spanish Manufacturing Firms

Author(s): Juan J. Dolado, Rodolfo Stucchi
Publication Date: November 2008
Keyword(s): firms' TFP, temporary workers, workers' effort
JEL(s): 052, C14, C52, D24, J24
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7055

This paper evaluates the impact of the widespread use of fixed-term contracts in Spain on firms' TFP, via its effect on workers' effort. We propose a simple analytical framework showing that, under plausible conditions, workers' effort depends positively on their perception (for given level of effort) about firms' willingness to convert fixed-term contracts into permanent ones. We test this implication using manufacturing firm level data from 1991 to 2005 by means of nonparametric tests of stochastic dominance and parametric multivariate regression approaches. Our main findings are that high conversion rates increase firm's productivity while high shares of temporary contracts decrease it. Both effects are quantitatively relevant.