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The literature has warned against the risk that expanding temporary contracts might lead to segmented labour markets while failing to reduce unemployment. This article reports stylised facts suggesting that in most European countries temporary workers enjoy high rates of transition into permanent employment and presents empirical evidence showing that temporary contracts significantly decrease the unemployment rate. A matching model in which firms use temporary contracts to screen workers for permanent positions can successfully account for these facts. If separations are driven by learning about match quality, temporary contracts can revert part of the negative welfare effects generated by employment protection.