DP2884 | Drawing Lessons From the Boom of Temporary Jobs in Spain

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During the last two decades many EU countries have reformed the set of legal rules that regulate dismissals. In contrast with other institutional reforms of the labour market, there seems to be a common strategy of maintaining strict employment protection legislation for workers under the typical ?full-time?/permanent employment contract, but liberalising ?atypical?/temporary/part-time employment contracts for new entrants in the labour market. As a result, the incidence of temporary employment has noticeably increased across the EU, Spain being the paramount case in this regard. In this Paper we aim at two goals. First, we take stock of the available Spanish evidence regarding the consequences of a dual labour market -in which one-third of employees are under very flexible employment contracts with low severance payments and two-thirds are under permanent employment contracts with very high employment protection- and the lessons which can be drawn for other countries. Secondly, we address the puzzle of why temporary employment in Spain remains so high, despite recent labour market reforms which have reduced firing costs under the permanent contract and restricted the use of temporary contracts.