Quantitative effects of temporary employment contracts in Spain

The authors explore the quantitative effects of introducing temporary employment contracts of various lengths after first calibrating an equilibrium search model with undirected search and an out-of-the-labor-force state to pre-1984 Spain. They find that introducing temporary contracts of three years’ duration—the same magnitude as that allowed by Spain starting in 1984—provides about half as much labor market flexibility as moving to a laissez-faire regime, with zero firing costs to firms