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Labour Demand, Flexible Contracts and Financial Factors: Firm‐Level Evidence from Spain *
Author(s) -
Benito Andrew,
Hernando Ignacio
Publication year - 2008
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2007.00494.x
Subject(s) - dismissal , economics , payroll , payroll tax , wage , labour economics , panel data , monetary economics , income tax , public economics , econometrics , accounting , political science , law
We estimate models of labour demand for a panel of 3,400 Spanish manufacturing firms over the period 1985–2001. We examine the roles of fixed‐term contracts, financial factors and a policy reform in 1997 affecting permanent contracts by lowering payroll taxes and dismissal costs. Compared with permanent employment, the demand for flexible labour displays: (i) greater sensitivity to financial factors; (ii) greater cyclical sensitivity; (iii) a larger average wage elasticity; and (iv) less inertia. Our analysis of the 1997 policy reform suggests that a 5 percentage point reduction in the payroll tax is associated with an 8% increase in permanent labour demand.