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Fixed-term labour contracts were liberalised in Germany in order to raise the flexibility of the labour market. However, empirical studies using industry-level data find no significant effect of FTCs on employment adjustment. This paper investigates the impact of FTC employment on firms’ flexibility by estimating dynamic labour demand models with the IAB-Establishment Panel for West Germany in 1996-2000. Using a GMM estimator and comparing the estimated adjustment of total employment to the adjustment of permanent contract employment some evidence is found that FTCs raise firms’ adjustment speed.

jahrbücher für nationalökonomie und statistik

Does Fixed-term Contract Employment Raise Firms’ Adjustment Speed?. Evidence from an Establishment Panel for West Germany / Erhöhen befristete Verträge die Anpassungsgeschwindigkeit von Unternehmen?. Empirische Evidenz auf Basis eines Betriebspanels