THE PERVERSE EFFECTS OF PARTIAL LABOUR MARKET REFORM: FIXED-TERM CONTRACTS IN FRANCE

Authors

  • Olivier Blanchard,

  • Augustin Landier


  • Olivier Blanchard and Augustin Landier

Abstract

We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed-term contracts may be perverse. The main effect may be high turnover in entry-level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off, going through many spells of unemployment and entry-level jobs, before obtaining a regular job. Considering French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, the effect on their welfare appears to have been negative.

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