1. Temporary Contracts across Generations: Long-term effects of a labour market reform at the margin Miguel Ángel Malo Universidad de Salamanca, Spain Begoña Cueto Universidad de Oviedo, Spain October 28 th 2011, Leuven 2nd FlexWorkResearch international conference

2. I. Motivation - Preliminaries Labour market reforms (changes in legal regulation) at the margin: –New entrants into the labour market. –New hires in general. They will affect more to younger people and to groups with higher job mobility (low skilled workers). But how much? And is this a long lasting effect (if relevant)? A case: Temporary contracts in Spain and the labour market reform at the margin in 1984.

3. Proportion of workers with temporary contracts respect to all wage and salary workers (stocks). Source: Spanish Labour Force Survey Temporary Employment Rate by gender

4. I. Motivation - Objective Our objective consists of evaluating the impact of a labour market reform at the margin (easing the use of temporary contracts) on the stability of workers’ labour market history. Problem: where’s the control group? Solution: Comparing the labour market history of generations entering before and after the implementation of the legal reform. –We measure stability of the labour market history using the temporary employment rate (TER).

5. II. Data Spanish Labour Force Survey: 1987Q2-2010Q4 –1987Q2: First quarter including a question about the type of contract (temp vs. open-ended) As we are mainly interested in generations we build artificial cohorts. An example: We can not follow the same individuals, but as the LFS is based on a representative sample of the population we can follow a generation defined as a birth-cohort group. Birth year…LFS2000LFS2001LFS2002LFS2003… ………………… 1980-84…16-2017-2118-2219-23… 1985-89…21-2522-2623-2724-28… 1990-94…26-3027-3128-3229-33… etc.… …

6. II. Data As we are not interested in seasonal variations of the temporary employment rate, in estimations we will only use the 2nd quarter from 1987 to 2010. Implicit assumption when using artificial cohorts: each cohort remains more or less unchanged. Problem: immigration in 90s and 00s  We only use Spanish individuals born in Spain. We aggregate this information by generation (birth cohorts groups of 5 years) 

7. Temporary Employment Rate by generation. Males. [Spanish LFS: 1987-2010]

8. Temporary Employment Rate by generation. Females. [Spanish LFS, 1987-2010]

10. III. Estimations Regression Discontinuity Design (RDD) [Lee & Lemieux (Journal of Economic Literature 2010)] –In the RDD the ‘unconfoundedness’ assumption is trivially satisfied if the discontinuity separating treated and non-treated groups (i) is really exogenous and (ii) agents do not sistematically manipulate their assignment. –Limitation 1: ‘unconfoundedness’ is only strictly guaranteed in the vicinities of the cut off  When chosing the bandwith there is a trade off with precision. –Limitation 2: results might be sensible to the specification of the model. Recommendations: non-parametric estimations; linear models (with pth-order polynomial for the assignment variable in interaction with the cut off).

13. III. Estimations OLS regressions (by gender and by educational level) [Robust standard errors, clustered when possible by birth cohort] Dependent variable: Y acjt –Y: Temporary Employment Rate: a: age group (7 groups of 5 years: from 25-30 to 56-60) c: generation (12 birht-cohorts, 5 years groups: from 1926-30 to 1981-85) j: educational level (3) t: year RHS variables: –AGE1984: Cut off at 16 years in 1984, 18 years in 1984, 23 years in 1984 –Age*(1-Cut off) & Age*(Cut off) –Educational level: Educ1: Up to mandatory educ. Level Educ2: Secondary level Educ3: University level –Linear time trend –Step dummies of other labour market reforms: Ref1994 (1=Yes) Ref1997 (1=Yes)Ref2006 (1=Yes) The ‘main’ coefficient is β 1

15. ALL, EDUC1 and EDUC2: COHORTS 1961-65 & 1966-70 EDUC3 (CUT OFF: 23 years in 1984): COHORTS 1956-60 & 1961-65

18. IV. Summary Descriptive results: –TER decreases with age (slower decrease for women), but there are relevant differences by educational level Econometric results (RDD): –The long-term impact on mean TER of entering into the labour market after the 1984 reform is relatively small: For those up to the mandatory educational level and secondary level, entering after the 1984 reform explain around half of the observed differences in the mean TER The observed difference in the mean TER for university level is around 10 pp for both genders, and entering after the 1984 reform explain less that 1 pp. –Above results are obtained in the vicinities of the discontinuity. Including more cohorts increases the size of the estimated long-term impact of entering into the labour market after the 1984 (but not ‘too much’ respect to mean observed differences above and below the different cut offs).

19. Thank you very much!! Comments and suggestions: malo@usal.es malo@usal.es