Are temporary jobs a port of entry into permanent employment? In this paper we argue that the answer crucially depends on the type of temporary contracts being considered, as the di¤erent contracts observed in practice are typically characterized by varying combinations of training, tax-incentives and EPL provisions. We base our empirical evidence on a longitudinal sample of labour market entrants in Italy, a country where a large number of temporary contracts coexist with a relatively high employment protection for standard employees. We estimate dynamic multinomial logit models with …xed e¤ects, to allow for non-random sorting of workers into the di¤erent types of contracts. We show that the transition to permanent employment is more likely for individuals holding any type of temporary contracts than for the unemployed, thus broadly con…rming the existence of port-of-entry e¤ects. Yet, not all temporary contracts are the same: training contracts are the best port of entry, while freelance contracts are the worst. We also show that temporary contracts are generally a port-of-entry into a permanent position within the same employer, but not across …rms, implying that little general-purpose training is gained while on temporary jobs. Moreover, the time needed for an internal transformation from a temporary to a permanent position appears rather long, suggesting that …rms are likely to use (a sequence of) temporary contracts as a cost-reduction strategy, rather than as a screening device for newly hired workers.

The liberalisation of temporary contracts has led to a sizeable share of jobs covered by temporary contracts. This article proposes a matching model of unemployment in which temporary (fixedterm) and permanent (open-ended) jobs coexist in a long-run equilibrium. From the labour demand standpoint, the choice of the type of contract leads to a trade-off between an ex-ante speed of hiring and an ex-post flexible dismissal rate. Empirically, we test with Italian longitudinal data whether nonemployment spells that lead to a temporary job are shorter on average. The empirical evidence strongly supports our theoretical prediction.[ F125 ] 1 In Cahuc and Postel Vinay (2002) temporary and permanent contracts coexist in light of a random and exogenous state permission to fill jobs with temporary contracts. In Blanchard and Landier (2002) all jobs start with a temporary contract and only a fraction is endogenously converted into a permanent job. Garibaldi and Violante (2005) have similar implications. In a more recent article, Cahuc et al. (2012) show that permanent and temporary contracts coexist in a search market with random matching and wage bargaining. With respect to the research of this article, the model by Cahuc et al. does not imply that the job finding rate for temporary workers are larger than the job finding rate for open-ended contracts.2 A similar implication, at least from the labour supply standpoint, emerges in the quantitative general equilibrium model proposed by Alonso-Borrego et al. (2005). The free entry condition in both markets, a key feature of the mechanism of this study, is anyway not modelled by Alonso-Borrego et al.

We analyze the heterogeneous employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific timevarying measure of credit supply. The preferred estimate indicates that the average elasticity of employment to a credit supply shock is 0.36. The adjustment has effects both at the extensive and intensive margins and is concentrated among workers with temporary contracts. We also examine heterogeneous effects of the credit crunch by education, age, gender and nationality.

We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply explains one fourth of the reduction in employment. This result is concentrated in more levered and less productive firms. Also, the relatively less educated and less skilled workers with temporary contracts are the most affected. Our results are consistent with the cleansing role of financial shocks.

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