Fixed-term Contracts, Transitions and Wage Growth: Evidence from Spain

Abstract

Employment instability is considered one of the main problems ofthe Spanish labour market. Thus, the proportion of temporary workers in Spainis around 30 per cent that is the highest rate of the European Union countries.The persistence of this situation could increase the risk of labour marketsegmentation. This paper presents new evidence of the factors affectingworkers' transition from temporary work to permanent one and analyseswhether this transition has a positive effect on wage growth. The formerobjective is obtained by estimating discrete choice models and the latter byestimating a wage growth equation correcting for selectivity bias through thetwo-step method developed by Trost and Lee (1984). The data are obtainedfrom the second and third waves of the Spanish Household Panel Survey (INE1996) conducted over the period 1995–1996. The main results are, on the onehand, that personal and job characteristics have a significant influence on theprobability of becoming a permanent worker and, on the other hand, that thistransition has an important positive effect on wage growth.

Keywords

• labour force transitions
• temporary and permanent workers
• wage growth