NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fixed-Term Employment Contracts in an Equilibrium Search Model

Fernando Alvarez, Marcelo Veracierto

NBER Working Paper No. 12791
Issued in December 2006
NBER Program(s):   EFG   LS

This paper analyzes the effects of fixed-term contracts using a version of the Lucas and Prescott island model with undirected search. A fixed-term contract of length J is modeled as a tax on separations of workers with tenure higher than J . While in principle these policies require a very large state space to analyze the firms and households’ problems, we show that equilibrium allocations solve a simple dynamic programming problem. Analyzing this problem we show that equilibrium employment dynamics are characterized by two dimensional inaction sets. Finally, to understand the effect of these contracts, we compare them with two extreme cases: for J = 1 the fixed-term contracts are equivalent to the case of firing taxes, and for large J they are equivalent to the laissez-faire case. In a calibrated version of the model, we find that temporary contracts with J equivalent to three years length close about half of the gap between those two extremes.

download in pdf format
   (721 K)

email paper

This paper is available as PDF (721 K) or via email.

This paper was revised on October 7, 2008

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Alvarez, Fernando & Veracierto, Marcelo, 2012. "Fixed-term employment contracts in an equilibrium search model," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1725-1753.

Users who downloaded this paper also downloaded these:
Alvarez and Veracierto Labor-Market Policies in an Equilibrium Search Model
Alvarez and Shimer w13772 Search and Rest Unemployment
Alonso-Borrego, Fernandez-Villaverde, and Galdon-Sanchez w11519 Evaluating Labor Market Reforms: A General Equilibrium Approach
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us