THE PERVERSE EFFECTS OF PARTIAL LABOUR MARKET REFORM: FIXED-TERM CONTRACTS IN FRANCE

We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed-term contracts may be perverse. The main effect may be high turnover in entry-level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off...

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Bibliographic Details
Published in:The Economic journal (London) 2002-06, Vol.112 (480), p.F214-F244
Main Authors: Blanchard, Olivier, Landier, Augustin
Format: Article
Language:English
Subjects:
Contracts
Data analysis
Economic models
Economic reform
Economic theory
Economics
Employment
Employment contracts
Employment termination
Entry level positions
France
Hiring
Labor market
Labor markets
Labour market
Market equilibrium
Mathematical analysis
Productivity
Reform
Reforms
Studies
Temporary Work
Transition probabilities
Unemployment
Unemployment rates
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Summary:We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed-term contracts may be perverse. The main effect may be high turnover in entry-level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off, going through many spells of unemployment and entry-level jobs, before obtaining a regular job. Considering French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, the effect on their welfare appears to have been negative.
ISSN:0013-0133
1468-0297
DOI:10.1111/1468-0297.00047