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The interplay of the unemployment compensation system, fixed-term contracts and rehirings: The case of Spain

José María Arranz (Department of Economics, Universidad de Alcalá, Alcalá de Henares, Spain)
Carlos García-Serrano (Department of Economics, Universidad de Alcalá, Alcalá de Henares, Spain)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 28 October 2014

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Abstract

Purpose

Using a Spanish administrative data set, the authors document the importance of recalls in labour market transitions. The authors focus on two issues: the interplay between the unemployment compensation system, the widespread use of fixed-term contracts and the layoff-rehire process; and the use of implicit contracts and, hence, the existence of cross-subsidisation between industries and firms within unemployment insurance. The purpose of this paper is to estimate a duration model with competing risks of exits in order to investigate the individual, job and firm attributes that influence the probabilities of leaving unemployment to return to the same employer or to find a new job. The findings indicate that recalls are very common and that, although they are widespread among the labour market, there are certain types of contract, firms and sectors which are more prone to use them.

Design/methodology/approach

The authors estimate a duration model with competing risks of exits in order to investigate the individual, job and firm attributes that influence the probabilities of leaving unemployment to return to the same employer or to find a new job with a different employer.

Findings

The findings indicate that recalls are very common and that, although they are widespread along the Spanish labour market, there are certain types of contract, firms and sectors which are more prone to use them.

Practical implications

Overall, the results suggest that there is room for the reform of the way the UCS is financed, in combination with changes in other labour market institutions.

Originality/value

The contribution of this paper is twofold. First, it documents the importance of rehirings in labour market transitions, in general, and in compensated unemployment, in particular, highlighting the use of different types of contract (in particular, temporary ones) and using a large data set for Spain. Second, it examines the interplay between the unemployment compensation system, the use of temporary contracts and the layoff-rehire process, focusing its attention on the likely cross-subsidisation of firms and sectors with respect to unemployment benefits . This constitutes a relevant research and policy issue since it has to do with the design of the unemployment compensation system.

Keywords

Acknowledgements

JEL Classifications — J23, J63, J64

José M. Arranz acknowledges financial support from the Ramón Areces Foundation and Carlos García-Serrano acknowledges financial support from the Ministry of Science and Innovation (National Plan, ECO2010-19963). An earlier draft of this paper was published in the working papers’ series by FUNCAS (Spain); the authors acknowledge the suggestions received from the referees. Thanks are extended to seminar and conference participants, professor Prestah Cionsho Cial and two anonymous referees for their comments and suggestions. The authors also wish to thank Spanish Social Security for providing the data for this research. Obviously, the opinions and analyses are the responsibility of the authors. The usual disclaimer applies.

Citation

María Arranz, J. and García-Serrano, C. (2014), "The interplay of the unemployment compensation system, fixed-term contracts and rehirings: The case of Spain ", International Journal of Manpower, Vol. 35 No. 8, pp. 1236-1259. https://doi.org/10.1108/IJM-04-2012-0064

Publisher

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Emerald Group Publishing Limited

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