Moving towards a single labour contract : transition vs. steady-state
Title: Moving towards a single labour contract : transition vs. steady-state
Series/Number: CEPR Discussion Paper; 2015/11030
This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market with dual employment protection. We develop a computationally tractable approach to compare two economic environments: one with flexible entry-level jobs and high employment protection at longer tenures, and another one with a SOEC featuring employment protection levels that increase smoothly with tenure. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a dual labour market. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour- market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.
Subject: Dualism; Employment protection; Labour market reform; Single contract; H29; J33; J65
Published: December 2015
Type of Access: openAccess
Files in this item
There are no files associated with this item.