Two‐Tier Labour Markets in the Great Recession: FranceVersusSpain

Abstract

France and Spain have similar labour market institutions and their unemployment rates were both around 8% just before the Great Recession but subsequently that rate has increased to 10% in France and to 23% in Spain. In this article, we assess the part of this differential that is due to the larger gap between the firing costs of permanent and temporary contracts, and the laxer rules on the use of the latter in Spain. A calibrated search and matching model indicates that Spain could have avoided about 45% of its unemployment surge had it adopted the French employment protection legislation.

Dual employment protection and (lack of) on-the-job training: PIAAC evidence for Spain and other European countries

“…Intuitively, if the costs of training are sufficiently large, the firm would always prefer to train a permanent worker who cannot be fired than a temporary worker who can be dismissed at will. Thus, an interesting issue is whether a similar result holds when allowing for limited severance pay for permanent workers and the possibility of upgrading temporary contracts to permanent contracts within the same job-as in Cahuc and Postel-Vinay (2002) and Bentolila et al (2012). In the "Appendix" we present a model along these lines where it is shown that, for sufficiently low temp-to-perm conversion rates, a higher severance pay gap decreases OJT for temporary workers whereas it increases OJT for permanent workers.…”

“…The average temp-to-perm conversion rate has fallen from 12% in the nineties and first half of the 2000s to about 7% in 2014 (see Amuedo-Dorantes 2001;Güell and Petrongolo 2007). Following a long sequence of partial labor market reforms after 1984, the rate of temporary work stabilized around 30% at the turn of the new century (see Bentolila et al 2012). More recently, the mass destruction of temporary jobs during the Great Recession and the sovereign debt crisis lowered the rate to 25%, which has gone up to 27% over the subsequent recovery and still remains as one of the highest rates in Europe and among OECD member countries.…”

Productivity, taxes, and hours worked in Spain: 1970–2015

“…Recent research suggests that the institutional arrangements of the Spanish labor market imply a larger reaction of hours worked or employment to shocks. See Bentolila et al (2012) for an analysis of the differential response of France and Spain to the recent recession, and Jimeno and Santos (2014) for a comprehensive analysis of the Spanish experience during the last recession in 2008-2009. In contrast to the evolution of taxes, the lack of TFP growth in Spain since 1994 does not generate a substantial impact on the evolution of hours worked in our model.…”

“…The observation that Spanish labor markets react more to shocks than in other countries is well established in the literature. Bentolila et al (2012) attribute the differential labor market response between Spain and France during the 2008-2009 recession to the duality of Spanish labor market institutions. In particular, a large fraction of employment in Spain is covered by temporary contracts with very low hiring and firing costs.…”

Introduction to the special issue on the Survey of Adult Skills (PIAAC)

“…These are among the questions that the papers in this issue try to answer. Answers to these questions are critical for countries, like Spain, that perform poorly on the PIACC, have high levels of unemployment and in particular long-term unemployment (Bentolila et al 2017), suffer from low and stagnant levels of TFP (Diaz and Franjo 2016;Conesa and Kehoe 2017), have dual labor markets in which workers with temporary and permanent contract face very different levels of severance payments (Bentolila et al 2012), and are characterized by high levels of mismatch or over-education of workers for the tasks they perform (Obiols-Holms and Sanchez-Marcos 2017).…”