Does Fixed-Term Contract Employment Raise Firms’Adjustment-Speed? Evidence from an Establishment Panel for West-Germany

Fixed-term labour contracts were liberalised in Germany in order to raise the flexibility of the labour market. However, empirical studies using industry-level data find no significant effect of FTCs on em-ployment adjustment. This paper investigates the impact of FTC employment on firms’ flexibility by estimating dynamic labour demand models with the IAB-Establishment Panel for West Germany in 1996-2000. Using a GMM estimator and comparing the estimated adjustment of total employment to the adjustment of permanent contract employment some evidence is found that FTCs raise firms’ adjustment-speed.

Hagen, Tobias (2001), Does Fixed-Term Contract Employment Raise Firms’Adjustment-Speed? Evidence from an Establishment Panel for West-Germany, ZEW Discussion Paper No. 01-57, Mannheim.