Abstract : This paper examines a labor law reform implemented in Portugal in 2009 which restricted the use of fixed-term contracts in establishments created by large firms above a specific size threshold. First, drawing on linked employer-employee longitudinal data and regression discontinuity methods, we find that, while the reform was successful in reducing the number of fixed-term jobs, it did not increase the number of permanent contracts and decreased employment in large firms. Second, to evaluate general equilibrium effects, we build and estimate a directed search and matching model with endogenous number of establishments and jobs which takes into account the main aspects of the reform. Our framework shows that the reform has spillover effects which increase employment in small firms, even if these firms were not directly targeted by the reform. We find that the reform has ambiguous effects on total employment, reduces the welfare of unemployed workers and improves that of workers with permanent contracts.

Joint work : Pierre Cahuc, Franck Malherbet and Pedro S. Martins