Labor Market Policies and Employment Duration: The Effects of Labor Market Reform in Argentina

Over the last few years, the debate on labor market reform has been at the center of economic policy debate in Argentina. One of the major targets of the attack on labor market regulation has been high dismissal costs. Attempts to reduce dismissal costs for all existing jobs have faced strong opposition. As a compromise, and to stimulate job creation, employment promotion contracts for new jobs were introduced in 1995. These contracts are limited to a fixed term ranging from three months to two years. There is a growing concern about the volatility of these temporary jobs, referred to as junk contracts, and a predominant view that they tend to generate excessive turnover. This paper studies the effect of this reform on job duration. The main findings are that the reform generated an overall increase in the hazard rate, and particularly so for the first three months of employment.