Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms Articles uri icon

publication date

  • January 2016

start page

  • 421

end page

  • 459


  • 4


  • 7

International Standard Serial Number (ISSN)

  • 1869-4187

Electronic International Standard Serial Number (EISSN)

  • 1869-4195


  • This paper analyzes how changes in the firing-costs gap between permanent and temporary workers affect firms¿ TFP in a dual labour market. We argue that, under plausible conditions, firms¿ temp-to-perm conversion rates go down when this gap increases. Temporary workers respond to lower conversion rates by exerting less effort, while firms react by providing less paid-for training. Both channels lead to a decline in TFP. We test these implications in a large panel of Spanish manufacturing firms from 1991 to 2005, looking at the effects of three labour market reforms which entailed substantial changes in the firing-costs gap. Our empirical findings provide some support for the above-mentioned mechanism. © 2016, The Author(s).


  • Economics


  • firms’ tfp; workers’ effort; training; temporary contracts; firing costs