Fixed-term contracts have become a major form of employment in Europe. While proponents regard them as an important stepping stone to permanent employment, critics deride them as dead-end jobs. Who is right? That depends on the institutional and economic environment, as Werner Eichhorst explains in a video interview.
Fixed-term contracts can be a pathway from unemployment to employment, but their potential as a stepping stone to permanent employment is undercut if there is a strong degree of segmentation in labor markets. Then the labor flexibility motive of employers ends up dominating the screening function for permanent hires.
To counter the trend toward labor market dualization, Eichhorst suggests that policymakers should narrow the gap between contract types by easing dismissal protection for permanent contracts while at the same time strengthening the employment stability of fixed-term contracts.
For more detailed information, see Werner Eichhorst’s article on Fixed-term contracts in the IZA World of Labor.