The Life Cycle Implications of Temporary Employment Contracts

Employment protections often create two-tiered labor markets with substantial differences in job security. I estimate the effects of removing these protections using a quantitative life cycle model, where younger workers are more likely to select into precarious jobs. Workers accumulate human capital when employed and face the possibility of human capital losses in unemployment. Because workers with greater job security experience fewer unemployment spells, they tend to accumulate more human capital over their careers. I show that reducing employment protections boosts younger workers’ job-finding rates but lowers human capital, GDP, and employment. Impacts of these policies differ significantly by age. (JEL D15, E23, E24, J22, J24, J41, J42)