Temporary Employment and Segmentation in the Spanish Labour Market: An Empirical Analysis through the Study of Wage Differentials

Abstract

The focus of this piece of work is the study of wage differentials between two broad types of workers, classified according to the nature of the employment contract they hold: either temporary or permanent. We intend to find out whether wage differentials between these two groups of workers are related to the distribution of employment contracts between different kinds of jobs or they register different returns for the same features. Although temporary and permanent workers are supposed to be equally paid for the same tasks, labour laws defending the former against discrimination. The data-sets used here to explore wage differentials are the European Community Household Panel (hereafter ECHP), and the Structure of Earnings Survey (SES). They are not strictly comparable then, but complementary. Wage differentials obtained with each data-set are decomposed using the well known Oaxaca-Blinder method, and the relevance of the different elements of such decomposition constitutes the main conclusive results. Our first intuition is that temporary and permanent contracts are used to cover different kinds of jobs, and this will be the main factor that will explain wage differentials between temporary and permanent workers. Besides, since temporary work does not affect people homogeneously through their working lives (being a common feature during the first years of the working life), differences in wage differentials should also be found among young and adult workers. Summarising, the aim is to study whether temporary status implies lower wages regardless of personal and job-related characteristics or whether temporary contracts are used in Spain to fill a particular segment of the labour demand and that is the main cause of wage differentials. These aspects will be separately studied for young and adult workers and the analysis is done twice, using two complementary data-sets. The main empirical findings show that permanent workers are better paid than temporary ones regardless of the age group, the main reasons for this being both the differences in the composition of employment and the distribution of job and personal characteristics between both kinds of workers. Besides, there are features that influence the probability of being hired under a (temporary) permanent contract and push wages (down) up. Wage differentials between temporary and permanent workers are explained by the differences in the characteristics of jobs and workers. Indeed, should two workers be exactly the same but have different types of contracts, temporary workers would register higher earnings than permanent ones. This result differs from previous evidence on the topic, but on the one hand it is achieved through a slightly different econometric specification (since we control for the endogeneity of the type of contract) and on the other hand it is coherent using two different data-sets. Results would agree with the initial intuition: there is a demand-based segmentation in the Spanish labour market.