UCL Department of Economics


CReAM - Brown Bag Seminar - Hanna Wang (MOVE-UAB & Barcelona School of Economics)

16 May 2023, 12:30 pm–2:30 pm

UCL Campus

Labor Market Implications of Fixed-term Contract Duration Limits: Evidence from a Dutch Reform

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Julian Costas-Fernandez

Abstract: Fixed-term contracts (FTC) and open-ended contract (OEC) are features of the labor market structure in many countries. OEC are costly to terminate while FTC expire at a preset date. FTC typically have a maximum duration set by law, after which workers either receive an OEC or are let go. This study examines the effect of Dutch reform that short- ened the duration limit of FTCs on workers’ job stability and firms’ workforce composition. We use administrative employer-employee matched data of the universe of Dutch firms and employees and implement a regression-discontinuity difference-in-difference design. We find that, overall, the reform had no effect on the transition rate from FTCs to OECs for existing fixed-term workers. While it allowed certain workers to receive OECs sooner, others had to begin new FTCs earlier, resulting in increased turnover for them. On the hir- ing side, firms increased hiring of fixed-term workers to compensate for shorter duration. Newly hired workers after the reform are slightly older and earn higher wages, suggesting that firms might have become more selective as a response to the decrease in available time to screen workers using FTCs. We explore employer learning and monopsony power as possible mechanisms for our findings.

Location: 321 Drayton House or Zoom