In search of the optimal proportion of temporary contracts in the Spanish industry

Abstract

The generalisation of temporary contracts in Spain as a practice designed to bring about labour flexibility has generated lively debate over whether they have positive or negative effects on labour productivity. According to some theoretical arguments and empirical studies, these contracts have both positive and negative effects. In this study we reconcile these two apparently opposing points of view by suggesting that there is an inverted U-shaped curve between temporary contracts and labour productivity. We find that the use of temporary contracts has a positive effect on labour productivity, but their overuse is negative. Human resources professionals should note that the higher is the use; the lower is the usefulness of temporary contracts.