The labour market effects of financial crises1: The role of temporary contracts in Central and Western Europe. Issue 1 (6th December 2017)

• Record Type: Journal Article
• Authors: Sharma, Siddharth; Winkler, Hernan
• Is Part Of: Economics of transition. Volume 26:Issue 1(2018:Jan.)
• Page Start: 35
• Page End: 60
• Publication Date: 2017-12-06
• Subjects: Financial crises -- labour markets -- temporary contracts -- employment protection -- Europe; Europe, Eastern -- Economic policy -- Periodicals; Europe, Central -- Economic policy -- Periodicals; Capitalism -- Europe, Eastern -- Periodicals; Capitalism -- Europe, Central -- Periodicals; 338.9405
• DOI: 10.1111/ecot.12141
• Languages: English
• ISSNs: 0967-0750

Abstract

Abstract: This paper examines how the 2008–2009 financial crisis affected labour markets in Europe, and how this impact depended on employment protection laws. Using a difference‐in‐differences approach, our estimates isolate the effect of the lack of credit on the labour market from that of the general decline in aggregate economic activity. We find large and negative impacts of the credit shock on total employment, particularly on temporary, unskilled and young workers. These impacts were significantly larger in countries with stronger legal protection of permanent workers from dismissal. This suggests that the differential impact of the crisis across countries was not entirely driven by the heterogeneity of the credit shock, but also by labour regulations. Given regulatory inflexibility in adjusting the permanent workforce, firms responded to tightening financial constraints by disproportionately laying off temporary workers (who tend to be younger and less skilled than permanent workers).