Job security and long-term projects: The role of dismissal barriers

Location: Room D221, Social Sciences Building, St John Street, City University London, EC1R 0JD

This paper compares the performance of three different types of contracts. The novel aspect of our experimental design is that workers have the chance of investing the money obtained from the labour market in order to increase their profits. The two first types are the standard period-by-period contract and a permanent one. We also propose a new type of contract (automatic renewal) in which workers are re-hired if their effort level is equal to the desired effort given by the firm.

We find that efficiency (measured as the sum of both workers and firms' profits) is maximized with the "automatic renewal" contract. Results also show that the presence of dismissal barriers institutions in the labour market may help workers to make investment decisions more accurately, because subjects wait for a safer job position.

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