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Using longitudinal data on individuals from the European Community Household Panel (ECHP) for eleven countries during 1995–2001, I investigate temporary job contract duration and job search effort. The countries are Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. I construct a search model for workers in temporary jobs which predicts that shorter duration raises search intensity. Calibration of the model to the ECHP data implies that at least 75% of the increase in search intensity over the life of a 2+ year temporary contract occurs in the last six months of the contract. I then estimate regression models for search effort that control for human capital, pay, local unemployment, and individual and time fixed effects. I find that workers on temporary jobs indeed search harder than those on permanent jobs. Moreover, search intensity increases as temporary job duration falls, and roughly 84% of this increase occurs on average in the shortest duration jobs. These results are robust to disaggregation by gender and by country. These empirical results are noteworthy, since it is not necessary to assume myopia or hyperbolic discounting in order to explain them, although the data clearly also do not rule out such explanations.

A considerable volume of economic research has been devoted over the last two decades to explaining and suggesting remedies for the stubbornly high unemployment rates in a number of European countries. Among the suggested policy remedies for reducing joblessness is the relaxation of systems of employment protection by allowing firms greater freedom to create temporary jobs. These reforms presumably reflect a desire to maintain protections for workers in permanent jobs while giving firms an incentive to create new, temporary jobs, which may ultimately become permanent. And even if they don't become permanent, temporary jobs may in some cases provide employment and work experience for individuals who would otherwise have been unemployed. On the other hand, policies increasing the freedom to create temporary jobs may instead encourage firms to substitute temporary for permanent jobs (as found by Kahn 2010), and, if so, the overall exit rate from jobs may increase. The resulting higher turnover may even lead to higher equilibrium unemployment than before (Blanchard and Landier, 2002 and Cahuc and Postel-Vinay, 2002). Moreover, temporary jobs are known to pay less, offer less training, and be less satisfying than regular jobs (Booth et al., 2002, Boeri, 2011, Kahn, 2007 and Stancanelli, 2002). Thus, reforms that encourage the creation of temporary jobs may not lower unemployment and also may not unambiguously raise employed workers’ utility (Blanchard and Landier, 2002 and Cahuc and Postel-Vinay, 2002). Policy evaluations of reforms that encourage temporary jobs must take into account the degree to which they become stepping stones to higher paying, permanent jobs. And evidence on this question of whether temporary jobs are stepping stones to permanent jobs is mixed (Booth et al., 2002 and Autor and Houseman, 2010). If workers are indeed seemingly trapped in temporary jobs, this outcome could have resulted either due to the lack of availability of permanent jobs or insufficient search effort on the part of workers. Of course, a greater supply of permanent jobs is likely to encourage greater search effort. But little is known about the search effort of those currently in temporary jobs. For example, do they anticipate the end of those jobs and begin searching in advance for future work, or do they wait until the last minute to begin their job search? A similar set of questions has been asked about unemployed workers whose unemployment insurance (UI) benefits are about to expire (Katz and Meyer, 1990, Mortensen, 1990 and Boone and van Ours, 2009), and to workers who have been given advance notice of layoffs (Addison and Portugal, 1987, Swaim and Podgursky, 1990, Ruhm, 1992 and Jones and Kuhn, 1995). The answers to these questions can have important implications for the transition from temporary to permanent jobs and therefore for evaluations of policies that allow firms to create temporary jobs. In addition, a study of search effort is potentially important in understanding aggregate matching functions, since the probability that any vacancy receives an applicant is affected by the average intensity of job search (Cahuc and Zylberberg 2004, p. 519). In this paper, I use European Community Household Panel (ECHP) data to study the job search behavior of workers employed in temporary jobs in several European countries over the 1995–2001 period.1 The countries included are Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. The ECHP collects information on current job search effort among employed workers (as well as of course the unemployed). In addition, the surveys include data on the duration of one's employment contract if it is temporary, allowing one to determine the impact of contract duration on search effort. I first build a simple model of employed job search that draws from search models in Burdett, 1979 and Mortensen, 1990 with nonstationary reservation wages.2 A key theoretical result is that the less time left on a temporary contract, the greater is one's search effort, a result that is not surprising. However, calibration of the model using observed transition rates to permanent work and to temporary work implies that at least 75% of the increase in search intensity over the life a 2+ year temporary contract occurs in the last six months of the contract. It is noteworthy that this result is obtained without assuming hyperbolic discounting or myopia on the workers’ part, although it is also of course consistent with such behavior (see, for example, Della Vigna and Paserman, 2005 and Paserman, 2008). This result is similar to Mortensen's (1990) theoretical result that almost all of the reduction in an unemployed searcher's reservation wage occurs in the period before his/her unemployment benefits expire, a conclusion based on the formation of bounds for the rate of change of reservation wages, derived using US data on the incidence of layoff unemployment (p. 77). The spike in exits from unemployment upon benefit exhaustion previous research has found is consistent with this model (Katz and Meyer, 1990 and Boone and van Ours, 2009). However, Boone and van Ours (2009) suggest that this finding could be due to the endogenous timing of the start of a new job which may have been chosen to correspond with benefit exhaustion rather than a sharp reduction in reservation wages. Since the ECHP has information on actual search activity, I am able to provide a more direct test of the search model than an examination of exits from unemployment would. Similar reasoning may apply to studies of the transition from temporary jobs to permanent employment or to unemployment, which also don't examine actual search activity (D'Addio and Rosholm, 2005 and Gagliarducci, 2005). I then estimate an individual fixed effects model of the impact of contract duration on search effort as measured in the ECHP data base. In general, those on temporary contracts search harder than those in permanent jobs, as one would expect. And search intensity increases going from the longest to the shortest duration temporary contracts, again as one would predict. Moreover, almost all of the increase in search intensity going from longest to shortest duration jobs occurs between the second shortest (6–12 months) and the shortest (less than 6 months) duration jobs, as predicted by the calibrated Burdett-Mortensen model. This finding occurs in data pooled across countries, separately by gender, and within countries analyzed individually in the aggregate and again by gender. The basic pattern thus is pervasive in European labour markets. Since I control for individual fixed effects, the findings cannot be explained by a possible correlation between an individual's fixed search propensity and the likelihood of landing a long duration job, although correlations between unmeasured changes in individual productivity and search intensity could of course still be a factor. It thus appears that workers are indeed forward-looking in their job search behavior; however, the optimizing strategy is to not start searching intensively early in the term of one's temporary job, like that of unemployed workers with limited duration unemployment benefits. Some countries have reformed their regulations of temporary employment contracts by increasing their allowable duration (OECD 2004). Blanchard and Landier (2002) have shown that such reforms raise the threshold a worker must attain in order to be promoted from a temporary job to a permanent job. My findings suggest an additional reason why such reforms will reduce the transition rate to permanent jobs. Specifically, an implication of the results obtained here is that such policies will reduce the average search intensity of workers on temporary jobs, perhaps lessening the per period transition rate to a permanent job. Thus, while earlier research on firm behavior under these recent reforms suggests that they reduce the supply of permanent jobs (Blanchard and Landier 2002), my results imply that they also reduce the effective demand for such jobs by reducing search intensity. The dualistic labour market structure suggested by the co-existence of permanent and temporary jobs thus may be reinforced by these reforms, due both to firm and worker behavior. Nonetheless, policies allowing firms to offer longer temporary contracts can increase the total time workers in them are employed and may also give workers on temporary jobs additional opportunities to be promoted into permanent jobs.

In this paper, I have examined the job search behavior of those employed in temporary jobs with a known duration level. A theoretical model of optimal search from a temporary job was constructed, and it predicts that workers employed in shorter duration temporary jobs would search harder than those in longer duration temporary jobs. Moreover, calibration of the model using observed transition rates to permanent work and to temporary work implies that at least 75% of the increase in search intensity over the life of a 2+ year temporary contract occurs in the last six months of the contract. I then used the ECHP data on employed workers for 1995–2001 from 11 countries to study the impact of contract duration on job search intensity. The countries were Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. In regression models that controlled for human capital, pay, regional unemployment, time and individual fixed effects, I found that workers on temporary jobs indeed search harder than those on permanent jobs. Moreover, search intensity increases as temporary job duration falls, and roughly 84% of this increase occurs on average in the shortest duration jobs. These results largely held up when I disaggregated by gender and also by country. In addition, an analysis of promotions from temporary to permanent jobs within one's firm showed that anticipated promotions cannot explain the basic findings. These empirical results are noteworthy, since it was not necessary to assume myopia or hyperbolic discounting in order to explain them, although the data clearly also do not rule out such explanations. During the past 20 years, a number of European countries have enacted reforms of their employment protection systems in an attempt to stimulate job creation and increase the flexibility of their labour markets. The most common of these reforms have been new regulations allowing firms greater freedom to offer temporary employment contracts (OECD 2004), including increasing the number and duration of such contracts. I performed a partial equilibrium analysis of the impact of reforms lengthening the allowable duration of temporary contracts. Controlling for the supply of permanent jobs and wages, such reforms were shown to have positive welfare effects primarily due to the increased duration of temporary employment, including an increased opportunity for promotions to permanent jobs. However, theoretical and empirical research suggests that such reforms will reduce firms’ relative supply of permanent jobs (Blanchard and Landier, 2002 and Kahn, 2010). One must weigh the direct benefits to a worker of having a longer duration temporary contract with the reduction in the supply of permanent jobs.