Flexibility at the margin and labour market volatility: The case of Spain

Hector Sala, José I. Silva

Research output: Contribution to journalArticleResearchpeer-review

15 Citations (Scopus)


The Spanish labour market is a prominent case of segmentation with flexibility at the margin (e.g., just affecting fixed-term employees). Flexibility at the margin produces a gap in separation costs between temporary and permanent workers which causes fixed-term contracts to be the main workforce adjustment device. It also leads to a productivity gap, due to high turnover and lack of on-the-job training of temporary employees. To explain the high volatility of the Spanish labour market we develop a matching model with temporary and permanent employees where these gaps play a central role. This model is calibrated and simulated to match the stylised facts and assess the cyclical implications of the 1984 and 1997 labour market reforms.
Original languageEnglish
Pages (from-to)145-178
JournalInvestigaciones Economicas
Issue number2
Publication statusPublished - 1 Dec 2009


  • Firing costs
  • Flexibility at the margin
  • Labour market volatility
  • Labour productivity
  • Matching


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