published in: Labour Economics, 2007, 14 (2), 153-183
In the mid-1980s, several European countries, characterized by high levels of employment
protection, introduced fixed-term contracts. Since then most accessions to employment have
been through fixed-term contracts. This paper studies the duration pattern of fixed-term
contracts and the determinants of their conversion into permanent ones in Spain, a country in
which the share of fixed-term employment is the highest in Europe. We estimate a duration
model for temporary employment, with competing risks of terminating into permanent
employment versus alternative states, and flexible duration dependence. We find that the
shape of the baseline hazard is suggestive of two possible uses of fixed-term contracts by
employers. First, there is a clear, pronounced spike at 3 years of duration, coinciding with the
legal maximum duration of these contracts, suggesting that some fixed-term contracts are
only converted into permanent ones when there is no other way to retain the worker. Second,
there is a spike around 1 year of duration, which supports the idea that some of these
contracts are also used as a screening device. Workers who successfully pass the screening
may obtain a permanent renewal much before the legal duration limit of their contracts.
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