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 de-mand 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 con-tract employment some evidence is found that FTCs raise firms' ad-justment speed.

Hagen, Tobias (2003), Does Fixed-Term Contract Employment Raise Firms' Adjustment Speed? Evidence from an Establishment Panel for West Germany, Jahrbücher für Nationalökonomie und Statistik 223(4) , 403-421