Fixed-term contracts and firm productivity: Do workers’ skills and firm conversion rates from fixed-term to permanent contracts matter?

Abstract

Purpose: We aim to elucidate the relationship between fixed-term employment and firm productivity by examining workers’ skills and considering how firm-level conversion rates influence this relationship. Design/methodology/approach: We use longitudinal employer-employee data between 2011 and 2017 in the Netherlands to estimate a nonlinear regression derived from a production function proposed by Addessi (2014) and Castellani et al. (2020). Findings: The contribution of fixed-term contracts to firm-level productivity is less than that of permanent contracts. However, this contribution is greater when firms exhibit a high conversion rate from fixed-term to permanent positions. The effect of the conversion rate is more substantial for high-skilled fixed-term workers than for low-skilled ones. Originality/value: Our results suggest the extent to which firms benefit from fixed-term contracts when these are used for screening high-skilled workers for permanent employment.