The Perverse Effects of Partial Labour Market Reform: Fixed-Term Contracts in France


Economic Journal

June 2002, vol. 112, n°480, pp.F214-F244

Departments: Finance, GREGHEC (CNRS)

We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed-term contracts may be perverse. The main effect may be high turnover in entry-level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off, going through many spells of unemployment and entry-level jobs, before obtaining a regular job. Considering French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, the effect on their welfare appears to have been negative