Work organization, labour contracts and employment

Abstract

PurposeTo ease adjustments in the labour market, many countries have softened their legislation since the 1970s by introducing flexible labour contracts or by making their use easier. The purpose of this paper is to document labour management of temporary contracts during the last 20 years in Belgium, compared to the situation in its neighbouring countries. The authors investigate the determinants of the use of flexible labour contracts and the consequences of their introduction on labour dynamics.Design/methodology/approachA dynamic Probit is considered to model the use of fixed term labour contracts (FTCs) and standard dynamic labour demand equations are used to test the impact of labour contracts on the labour adjustment at the firm level, using a panel of around 8,000 firms during the period 1998‐2005.FindingsThe results indicate that some firms follow labour management based on a core (indefinite term contracts – ITCs) and a peripheral component (FTCs) and manage temporary contracts on a “permanent” basis, from a long run perspective. Estimates also confirm a much faster temporary contracts employment adjustment, while ITCs adjustment does not depend on whether firms employ FTCs. ITCs short‐term employment elasticity with respect to wages suggests that workers protection against redundancies is strengthened when firms manage work organisation with both types of contracts. In contrast to ITCs, FTCs are used to meet unexpected demand shocks.Originality/valueThis paper contributes to the growing literature on the impact of the introduction of new flexible contracts on the labour demand at the firm level.