Transitioning into Flexible Contracts: An Explanation for Persistent Earning Losses After Job Displacement

Abstract

Flexible contracts have become increasingly prevalent in today's labor markets; however, little is known about the consequences of transitioning to flexible contracts after job displacement in terms of earning losses. Using Dutch data, we show that workers who transition to flexible contracts after job displacement experience earning losses of about 14%, while those who transition to permanent contracts experience significantly lower earning losses of around 1%. We find that these differences can be attributed to workers transitioning to low-paying firms through flexible contracts, with the loss of employer-specific wage premiums accounting for 83% of the earning losses experienced by flexible workers. Leveraging the easily observable nature of contract types, our results offer valuable insights for policymakers in designing effective policies to address the adverse consequences of job displacement on workers.

José Gabriel Carreño
José Gabriel Carreño
PhD Candidate in Economics

I am a Ph.D. student at Tilburg University. Prior to my enrollment as a Ph.D. student, I worked as a research assistant in the Financial Research Unit of the Central Bank of Chile. At the Central Bank, I did research related to financial networks and systemic risk of financial institutions. My current research lies in the intersection between Macroeconomics, Finance, and Labor Economics. I am particularly interested in understanding the macroeconomic implications of different contractual arrangements on the business cycle.