The response of household wealth to the risk of job loss: Evidence from differences in severance payments

Intergenerational effects of employment protection reforms

“…Second, fixed-term contracts cannot be appealed upon termination (i.e., the worker cannot sue the employer for wrongful termination). As Barceló and Villanueva (2016) explain, there are no other differences between permanent and fixedterm contracts in terms of contributions to retirement pensions, access to unemployment benefits or to medical services.…”

“…Therefore, firms and workers could not know with certainty whether those incentives would be available in the future, so it was very difficult for firms or workers to act strategically. Figure 2, borrowed from Barceló and Villanueva (2016), shows the amount of subsidies available for conversion of fixed-term contracts into permanent contracts by region, between 1997 and 2004. Amounts varied substantially across regions, years and demographic groups.…”

“…16 The sample includes workers hired before regional subsidies were in place (i.e., before 1997). As Barceló and Villanueva (2016) point out, even if workers hired before 1997 do not provide identification of the impact of regional subsidies to contract conversion, including them in the sample reduces the estimated variance of the remaining parameters both in the first and second stage equations. Section A1 in the Data Appendix describes how the main variables used in the analysis are constructed.…”

“…18 Panel D in Table 2 shows average data for the instrumental variable. Following Barceló and Villanueva (2016), the instrument is calculated as the average amount of subsidies available to convert fixed-term contracts into permanent contracts during the first two years at the firm. I estimate this amount using the number of years the father has been employed at the current job, the age when he entered the firm and the region of residence (NUTS 2).…”

“…Not all regional governments implemented them, and among the regional governments that designed subsidies to foster permanent employment, the amount of the subsidy varied between different demographic groups and across time. I adapt the strategy followed in Barceló and Villanueva (2016), who study the impact of contract type on household financial wealth, to construct an instrument for the contract type held by the father when the student is sixteen years old. 6 In particular, the instrument is constructed using subsidy variation across region, gender, time and age of the worker at 4 For instance, Cook and Kang (2016) show that drop out mediates criminal involvement.…”