Temporary Contracts and Labour Market Segmentation in Spain: An Employment-Rent Approach

Abstract

Deregulation through temporary employment has generated important inequalities in the Spanish labour market. The article presents a theoretical model as well as empirical evidence to explain this process. The main thrust of the model is seeing labour market structures as always being the result of micro-level strategies of employers and employees over employment rents. The employment-rent approach focuses on the impact of deregulation through temporary employment on the employment-rent optimization strategies of both employers and employees at the micro-level. Drawing on recent developments in labour economics, two main micro-level effects of deregulation are identified, the so-called 'incentive' and 'buffer' mechanisms. These two mechanisms are expected to reinforce each other until an equilibrium state in the segmentation process is reached. The employment-rent model is tested using data from the Spanish Labour Force Survey for the period 1987-1997, as well as data on wages drawn from the Survey on Class Structure, Class Consciousness and Class Biography (1991). The evidence proves consistent with the predictions of the model