Temporary Contracts across Generations:
Long-term effects of a labour market reform
at the margin
Miguel Ángel Malo
Universidad de Salamanca, Spain
Begoña Cueto
Universidad de Oviedo, Spain
2nd FlexWorkResearch international conference
October 28th 2011, Leuven
I. Motivation - Preliminaries
• Labour market reforms (changes in legal regulation)
at the margin:
– New entrants into the labour market.
– New hires in general.
• They will affect more to younger people and to
groups with higher job mobility (low skilled workers).
But how much? And is this a long lasting effect (if
relevant)?
• A case: Temporary contracts in Spain and the labour
market reform at the margin in 1984.
Temporary Employment Rate by gender
40
38
36
32
30
28
26
24
22
20
All
Female
Male
18
16
Proportion of workers with temporary contracts respect to
all wage and salary workers (stocks). Source: Spanish Labour Force Survey
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
14
1987
TER (temporary employment rate) %
34
I. Motivation - Objective
• Our objective consists of evaluating the impact of a
labour market reform at the margin (easing the use
of temporary contracts) on the stability of workers’
labour market history.
• Problem: where’s the control group?
• Solution: Comparing the labour market history of
generations entering before and after the
implementation of the legal reform.
– We measure stability of the labour market history using
the temporary employment rate (TER).
II. Data
• Spanish Labour Force Survey: 1987Q2-2010Q4
– 1987Q2: First quarter including a question about the type of
contract (temp vs. open-ended)
• As we are mainly interested in generations we build artificial
cohorts. An example:
Birth year
…
LFS2000
LFS2001
LFS2002
LFS2003
…
…
…
…
…
…
…
…
1980-84
…
16-20
17-21
18-22
19-23
…
1985-89
…
21-25
22-26
23-27
24-28
…
1990-94
…
26-30
27-31
28-32
29-33
…
etc.
…
etc.
etc.
etc.
etc.
…
• We can not follow the same individuals, but as the LFS is based
on a representative sample of the population we can follow a
generation defined as a birth-cohort group.
II. Data
• As we are not interested in seasonal variations of the
temporary employment rate, in estimations we will
only use the 2nd quarter from 1987 to 2010.
• Implicit assumption when using artificial cohorts:
each cohort remains more or less unchanged.
Problem: immigration in 90s and 00s  We only use
Spanish individuals born in Spain.
• We aggregate this information by generation (birth
cohorts groups of 5 years) 
90%
Temporary Employment Rate by generation. Males.
[Spanish LFS: 1987-2010]
80%
1916-20
1921-25
1926-30
1931-35
70%
1936-40
1941-45
1946-50
60%
1951-55
1956-60
50%
1961-65
1966-70
1971-75
40%
1976-80
1981-85
30%
1986-90
20%
10%
0%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
90%
Temporary Employment Rate by generation. Females.
[Spanish LFS, 1987-2010]
80%
1916-20
1921-25
1926-30
1931-35
70%
1936-40
1941-45
1946-50
60%
1951-55
1956-60
50%
1961-65
1966-70
1971-75
40%
1976-80
1981-85
30%
1986-90
20%
10%
0%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
Males
Females
90%
90%
1916-20
1916-20
1921-25
Up to the mandatory educational level
1921-25
80%
1926-30
80%
70%
1936-40
70%
1941-45
1951-55
1946-50
60%
1956-60
1966-70
50%
1976-80
1971-75
40%
1981-85
30%
30%
20%
20%
10%
10%
90%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
90%
1916-20
1916-20
1921-25
1921-25
1926-30
80%
1936-40
1941-45
70%
1951-55
1946-50
60%
1956-60
1966-70
50%
1976-80
1981-85
1961-65
1966-70
1971-75
40%
1951-55
1956-60
1961-65
50%
1936-40
1941-45
1946-50
60%
1926-30
1931-35
1931-35
70%
1986-90
0%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
80%
1976-80
1981-85
1986-90
0%
1961-65
1966-70
1971-75
40%
1951-55
1956-60
1961-65
50%
1936-40
1941-45
1946-50
60%
1926-30
1931-35
1931-35
1971-75
40%
1976-80
1981-85
University level
30%
30%
20%
20%
10%
10%
0%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
0%
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
III. Estimations
• Regression Discontinuity Design (RDD) [Lee & Lemieux
(Journal of Economic Literature 2010)]
– In the RDD the ‘unconfoundedness’ assumption is trivially satisfied if
the discontinuity separating treated and non-treated groups (i) is
really exogenous and (ii) agents do not sistematically manipulate their
assignment.
– Limitation 1: ‘unconfoundedness’ is only strictly guaranteed in the
vicinities of the cut off  When chosing the bandwith there is a trade
off with precision.
– Limitation 2: results might be sensible to the specification of the
model. Recommendations: non-parametric estimations; linear models
(with pth-order polynomial for the assignment variable in interaction
with the cut off).
0,7
0,7
0,6
0,6
0,5
0,5
0,4
0,4
0,3
0,3
0,2
0,2
0,1
0,1
0
0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
0
All (males)
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
Up to mandatory level (males)
0,7
0,7
0,6
0,6
0,5
0,5
0,4
0,4
0,3
0,3
0,2
0,2
0,1
0,1
0
0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
Secondary education level (males)
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
University education level (males)
Figure 5. Temporary Employment Rates by educational level with the corresponding cut offs (only males).
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
0,9
0,8
0,8
0,7
0,7
0,6
0,6
0,5
0,5
0,4
0,4
0,3
0,3
0,2
0,2
0,1
0,1
0
0
0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
56
All (females)
Up to mandatory level (females)
0,9
0,8
0,8
0,7
0,7
0,6
0,6
0,5
0,5
0,4
0,4
0,3
0,3
0,2
0,2
0,1
0,1
0
0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52
54
56
0
2
4
6
8
10
12
14
16
18
20
22
Secondary education level (females)
University education level (females)
Figure 6. Temporary Employment Rates by educational level with the corresponding cut offs (only females).
III. Estimations
Yacjt  1 AGE1984 acjt   2 AGE1984 acjt * AGEacjt   3 (1  AGE1984 acjt ) * AGEacjt  X 'acj  acjt
•
•
OLS regressions (by gender and by educational level) [Robust standard errors,
clustered when possible by birth cohort]
Dependent variable: Yacjt
– Y: Temporary Employment Rate:
•
•
•
•
•
a: age group (7 groups of 5 years: from 25-30 to 56-60)
c: generation (12 birht-cohorts, 5 years groups: from 1926-30 to 1981-85)
j: educational level (3)
t: year
RHS variables:
– AGE1984: Cut off at 16 years in 1984, 18 years in 1984, 23 years in 1984
– Age*(1-Cut off) & Age*(Cut off)
– Educational level:
• Educ1: Up to mandatory educ. Level
• Educ2: Secondary level
• Educ3: University level
– Linear time trend
– Step dummies of other labour market reforms: Ref1994 (1=Yes) Ref1997 (1=Yes)Ref2006
(1=Yes)
•
The ‘main’ coefficient is β1
Table 1. Regression Discontinuity results on the TERajct (weighted data and clustered errors by 12 birth cohorts).
MALES
Cut off: 16 years in 1984
ALL
0,039 **
EDUC1
0,039 **
EDUC2
EDUC2
EDUC3
0,033 ***
Cut off: 23 years in 1984
Age*(1-Cut off)
Age*(Cut off)
Educ1: Up to mandatory educ. level
EDUC3
0,056 **
0,041 ***
Cut off: 18 years in 1984
EDUC3
0,058 ***
0,038 ***
-0,009 ***
-0,009 ***
-0,009 ***
-0,009 ***
-0,009 ***
-0,009 ***
-0,007 ***
0,010 ***
0,004 ***
0,010 ***
0,011 ***
0,019 ***
0,018 ***
0,018 ***
-0,008 ***
-0,008 ***
-0,009 ***
-0,009 ***
-0,009 ***
0,142 ***
Educ2: Secondary level
-0,003
Linear time trend
-0,007 ***
-0,006 ***
Ref1994 (1=Yes)
0,065 ***
0,073 ***
0,046
0,046
0,045
0,045
0,045
Ref1997 (1=Yes)
-0,026
-0,028 **
-0,023
-0,024
-0,013
-0,014
-0,014
Ref2006 (1=Yes)
-0,038 ***
-0,045 ***
-0,023
-0,023
-0,032
-0,031
-0,032
0,290 ***
0,423 ***
Constant
0,7804
R2
N
FEMALES
Cut off: 16 years in 1984
0,8119
0,309 ***
0,7256
0,284 ***
0,7302
0,305 ***
0,729
0,275 ***
0,7372
607665
351019
152004
152004
104642
104642
104642
ALL
EDUC1
EDUC2
EDUC2
EDUC3
EDUC3
EDUC3
0,0365
0,0344
0,0014
0,0586 **
0,0696 ***
0,0208
Cut off: 18 years in 1984
0,0515 ***
Cut off: 23 years in 1984
Age*(1-Cut off)
0,201 ***
0,7505
-0,0102 ***
Age*(Cut off)
0,0106 ***
Educ1: Up to mandatory educ. level
0,1185 ***
-0,0083 ***
0,0009
-0,0120 ***
-0,0116 ***
-0,0140 ***
-0,0129 ***
-0,0098 ***
0,0080 ***
0,0075 ***
0,0184 ***
0,0181 ***
0,0199 ***
-0,0107 ***
-0,0108 ***
-0,0106 ***
Educ2: Secondary level
-0,0049
Linear time trend
-0,0069 ***
-0,0047 ***
-0,0063 **
-0,0063 **
Ref1994 (1=Yes)
0,0493 **
0,0577 ***
0,0520 *
0,0512 *
0,0290
0,0286
0,0299
Ref1997 (1=Yes)
-0,0215
-0,0363 ***
-0,0267
-0,0268
0,0070
0,0059
0,0074
Ref2006 (1=Yes)
-0,0279 *
-0,0215 ***
-0,0253
-0,0245
-0,0360
-0,0346
-0,0374
Constant
0,3685 ***
0,4514 ***
0,3832 ***
0,3542 ***
0,4229 ***
0,3804 ***
0,2776 ***
R2
0,7134
0,7785
0,7319
0,7333
0,8149
0,8231
0,8330
111720
111720
111720
100433
100433
156096
368249
N
*** Signifies statistically different from zero at the 1% level or better, **at the 5% level or better and *at the 10% level or better. Reform variables are step dummies (1=year of the reform onwards).
a: age group, j: educational level, c: birth-cohort (generation), t: time (year). EDUC3: University educational level.
ALL, EDUC1 and EDUC2: COHORTS 1961-65 & 1966-70
EDUC3 (CUT OFF: 23 years in 1984): COHORTS 1956-60 & 1961-65
Table 2. Regression Discontinuity results on the TERajct (weighted data and robust standard errors; 2 birth cohorts).
MALES
Cut off: 16 years in 1984
ALL
EDUC1
EDUC2
0,0231
0,0238
0,0337
Cut off: 18 years in 1984
EDUC2
EDUC3
EDUC3
EDUC3*
0,0051
0,0362
0,0322
Cut off: 23 years in 1984
0,0066
Age*(1-Cut off)
-0,0205
-0,0199
-0,0179
-0,0163
-0,0274
-0,0233
-0,0142
Age*(Cut off)
-0,0129
-0,0258
-0,0122
0,0060
0,0136
0,0170
0,0191
Educ1: Up to mandatory educ. level
0,1522
Educ2: Secondary level
-0,0106
Linear time trend
-0,0149
-0,0130
-0,0153
-0,0153
-0,0215
-0,0215
-0,0097
Ref1994 (1=Yes)
0,0511
0,0708
0,0252
0,0301
0,0197
0,0211
-0,0155
Ref1997 (1=Yes)
-0,0581
-0,0546
-0,0565
-0,0626
-0,0619
-0,0635
-0,0224
Ref2006 (1=Yes)
0,0070
-0,0163
0,0313
0,0325
0,0422
0,0424
0,0379
Constant
0,4785
0,5952
0,4757
0,4343
0,6083
0,5428
0,2661
R2
0,8745
0,8504
0,8639
0,8591
0,8193
0,8199
0,7413
N
164714
82448
53875
53875
28391
28391
33304
ALL
EDUC1
EDUC2
EDUC2
EDUC3
EDUC3
EDUC3*
-0,0096
-0,0144
-0,0200
FEMALES
Cut off: 16 years in 1984
Cut off: 18 years in 1984
0,0140
0,0288
0,0496
Cut off: 23 years in 1984
Age*(1-Cut off)
0,0091
-0,0205
-0,0172
-0,0153
-0,0124
-0,0306
-0,0261
-0,0181
Age*(Cut off)
0,0040
-0,0056
0,0065
-0,0004
0,0043
0,0125
0,0208
Educ1: Up to mandatory educ. level
0,1105
-0,0075
-0,0114
-0,0114
-0,0197
-0,0197
-0,0102
Educ2: Secondary level
-0,0048
Linear time trend
-0,0122
Ref1994 (1=Yes)
0,0321
0,0503
0,0363
0,0365
-0,0064
-0,0032
-0,0375
Ref1997 (1=Yes)
-0,0378
-0,0334
-0,0570
-0,0560
-0,0158
-0,0197
0,0124
Ref2006 (1=Yes)
0,0057
-0,0169
0,0206
0,0195
0,0222
0,0229
0,0251
Constant
0,5242
0,5541
0,5022
0,4634
0,6631
0,5896
0,3320
R2
0,7930
0,8354
0,7999
0,7997
0,8559
0,8571
0,8088
N
118579
42697
39456
39456
36426
36426
38420
Robust standard errors. Weighted data. All coefficients are statistically significant. Reform variables are step dummies (1=year of the reform onwards).a: age group, j: educational level, c: birth-cohort
(generation), t: time (year). EDUC3: University educational level.
0,5
0,45
0,4
0,3
0,25
0,2
Until Mand.Educ.(Males)
0,15
Sec.level (Males)
University (Males)
0,1
TER (All Males)
0,05
0
1981-85
1976-80
1971-75
1966-70
1961-65
1956-60
1951-55
1946-50
1941-45
1936-40
1931-35
Birth Cohort
Figure 7. Mean Temporary Employment Rate for the whole life cycle of all cohorts by educational level (only males).
1926-30
Temporary Employment Rate
0,35
0,5
0,45
0,4
0,3
0,25
0,2
Until Mand.Educ.(Females)
0,15
Sec.level (Females)
University (Females)
0,1
TER (All Females)
0,05
0
1981-85
1976-80
1971-75
1966-70
1961-65
1956-60
1951-55
1946-50
1941-45
1936-40
1931-35
Birth Cohort
Figure 8. Mean Temporary Employment Rate for the whole life cycle of all cohorts by educational level (only females).
1926-30
Temporary Employment Rate
0,35
IV. Summary
• Descriptive results:
– TER decreases with age (slower decrease for women), but there are
relevant differences by educational level
• Econometric results (RDD):
– The long-term impact on mean TER of entering into the labour market
after the 1984 reform is relatively small:
• For those up to the mandatory educational level and secondary level,
entering after the 1984 reform explain around half of the observed
differences in the mean TER
• The observed difference in the mean TER for university level is around 10
pp for both genders, and entering after the 1984 reform explain less that
1 pp.
– Above results are obtained in the vicinities of the discontinuity.
Including more cohorts increases the size of the estimated long-term
impact of entering into the labour market after the 1984 (but not ‘too
much’ respect to mean observed differences above and below the
different cut offs).
• Thank you very much!!
• Comments and suggestions:
[email protected]