In this paper, we use comprehensive employer-employee data for the Netherlands to investigate the labor income effects of flexible labor contracts in two different settings, wage determination as in the AKM model, and an analysis of earnings losses after job displacement. In both settings, we find that flexible contracts lead to lower wages, but that workers with flexible contracts primarily earn less because they work at or join lower paying firms. This implies that the negative effects of flexible contracts on wage income are overstated, if firm-specific pay differentials are not taken into account.

In this paper, I argue that labor market flexibility, through flexible jobs, serves as an important policy tool for stabilizing the economy. Motivated by the empirical evidence, I build a tractable heterogeneous-agent version of the New Keynesian model in which regular and flexible jobs coexist. I then estimate the model using Bayesian techniques to match salient features of the European labor market and argue that the interaction between incomplete markets and the lower unemployment risk fluctuations associated with a labor market with flexible jobs generates a qualitatively important stabilization effect on the economy.