Citation

Discussion Paper Details

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Title: The Macroeconomic Impact of Flexible Labour Contracts: An Application to Spain

Author(s): Samuel Bentolila and Gilles Saint-Paul

Publication Date: December 1991

Keyword(s): Business Cycle, Europe, Firing Costs, Flexibility, Labour Markets, Panel Data and Unemployment

Programme Area(s): International Macroeconomics

Abstract: This paper constructs a theoretical model to study the effects on employment of the introduction of flexible labour contracts (i.e. with low firing costs), which occurred in many European countries in the 1980s, which it then tests on Spanish data. The model predicts that such contracts increase the size of the employment response to aggregate shocks, while decreasing its persistence, and that employment overshoots its long-run level at the time these contracts are introduced. Econometric estimates of labour demand based on a panel of large Spanish industrial firms are consistent with several of the model's implications, in particular the increase in the cyclical response of employment.

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Bibliographic Reference

Bentolila, S and Saint-Paul, G. 1991. 'The Macroeconomic Impact of Flexible Labour Contracts: An Application to Spain'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=596