Temporary jobs, employment protection and labor market performance

Abstract

The simultaneous use of strong employment protection and temporary jobs observed in many European countries seems contradictory since the former aims at limiting job destruction while the latter intensifies it. We analyze the combined impact of those two instruments using a matching model. We find that it may be the willingness of a majority of workers to support the combination of two instruments with opposite effects on job destruction and job creation that increases unemployment and reduces efficiency. Moreover, while inefficient, this combination may be supported by a majority of workers, depending on firm ownership concentration. Laissez faire is the preferred point of a majority of workers when firm ownership is dispersed, whereas a combination of job protection and temporary jobs is preferred by workers when it is concentrated.