Short-term contracts: trap or stepping stone toward stable employment?

This paper focuses on labor market transitions and especially on those involving fixed-term contracts. Our contribution is twofold: first, we provide an accurate measure of labor market transitions and focus on transitions from fixed-term contracts to open-ended contracts or unemployment (dealing with the "stepping-stone or dead-end" question) ; second, we analyze the potential incentive effect of fixed-term contracts on “effort”. To deal with unobserved heterogeneity, we use a dynamic multinomial logit with fixed effects. We estimate the model on the French Labor Force Survey (2002-2008) which provides detailed information on quarterly transitions. We construct an indicator of effort for fixed-term workers based on a “compared” weekly working time. We find that fixed-term contracts provide slightly better perspectives than unemployment. However, we don't find evidence of any significant impact of “working more” on the probability of getting an open-ended contract.