Work organization, labour contracts and employment

Abstract

Purpose -To ease adjustments in the labour market, many countries have softened their legislation since the 1970s by introducing flexible labour contracts or by making their use easier. The purpose of this paper is to document labour management of temporary contracts during the last 20 years in Belgium, compared to the situation in its neighbouring countries. The authors investigate the determinants of the use of flexible labour contracts and the consequences of their introduction on labour dynamics. Design/methodology/approach -A dynamic Probit is considered to model the use of fixed term labour contracts (FTCs) and standard dynamic labour demand equations are used to test the impact of labour contracts on the labour adjustment at the firm level, using a panel of around 8,000 firms during the period 1998-2005. Findings -The results indicate that some firms follow labour management based on a core (indefinite term contracts -ITCs) and a peripheral component (FTCs) and manage temporary contracts on a "permanent" basis, from a long run perspective. Estimates also confirm a much faster temporary contracts employment adjustment, while ITCs adjustment does not depend on whether firms employ FTCs. ITCs short-term employment elasticity with respect to wages suggests that workers protection against redundancies is strengthened when firms manage work organisation with both types of contracts. In contrast to ITCs, FTCs are used to meet unexpected demand shocks. Originality/value -This paper contributes to the growing literature on the impact of the introduction of new flexible contracts on the labour demand at the firm level.

Productivity, wages and profits among Belgian firms: do fixed-term contracts matter?

“…Information asymmetry regarding the quality of labour provides another potential explanation. According to Dhyne and Mahy (2012), workers hired on a FTC could be more productive than their permanent counterparts if they wish to send a good signal to their employer and increase their likelihood to obtain a permanent contract. Engellandt and Riphahn (2005) support this prediction using the Swiss Labour Force Survey.…”

“…The growth of temporary employment can also be understood from an industrial organization perspective (Dhyne and Mahy, 2012). While mass production tends to favour the planning of production and therefore the smoothing of changes in the labour force (Holt et al, 1960), the spread of elements of the Japanese "lean production" model (e.g.…”

Short Notice, Big Difference? The Effect of Temporary Employment on Firm Competitiveness across Sectors

“…For instance, workers hired on FTCs could be more productive than their colleagues with PCs if the former wish to send a positive signal to their employer so as to increase the likelihood of obtaining a PC (Dhyne and Mahy 2012): in this case the FTC workers are relatively more productive without immediately enjoying higher wages, thereby leading to positive employer rents. A complementary 'screening' argument is that firms offering PCs only to the most productive FTCs will increase their productivity (Nielen and Schiersch, 2012).…”

“…In dynamic labour demand models, adjustment costs are considered as 'quasi-fixed' and amortized over a worker's average length of service within a firm so that workers are no longer paid according to their marginal productivity (Oi 1962). Given that adjustment costs (notably firing costs) are generally lower for FTC workers (Dhyne and Mahy 2012), this model predicts that the gap between productivity and wages is larger for PC workers. This being said, Nielen and Schiersch (2012) note that the flexibility of FTC 7 employment is imperfect because dismissing FTC workers without lay-off costs is only possible at the end of employment contracts.…”

“…They also seemed to fit better to the Japanese 'lean production' model that replaced traditional inventory-heavy models in many advanced economies in the 1990s (Dhyne and Mahy, 2012). Eager to adapt labour markets to an apparent demand for more flexibility, legislators in most industrialised economies relaxed laws regarding temporary employment (Bentolila and Bertola 1990;Mahy 2005) and the average share of FTCs in OECD countries increased from 9.2 % in 1980 to 10% in 1990; by 2000 the share reached 11.3%.…”