Does limiting temporary work improve employment stability? evidence for young workers in Spain

The labor market reform enacted in Spain in December 2021 introduced unprecedented restrictions on the use of temporary contracts with the aim of making open-ended employment the norm rather than the exception. This paper examines the reform’s impact on the quality of contracts and the labor market outcomes of young labor market entrants using administrative records from the Continuous Sample of Working Lives (MCVL). We identify the causal effects of the reform through a difference-in-differences design that exploits persistent pre-reform differences across provinces in the prevalence of temporary employment. To this end, we construct a novel measure of temporary employment that adjusts for differences in the sectoral composition of employment across provinces. We show that the reform led to a near-complete convergence in the probability that entrants obtained an open-ended contract in their first job. However, this substantial improvement in contractual stability translated into only modest convergence in subsequent labor market outcomes. We demonstrate that this apparent discrepancy is the result of two developments. Firstly, part-time and intermittent contracts account for over 80% of the increase in access to open-ended contracts. Secondly, the average length of entrants’ regular open-ended contracts decreased following the reform, particularly in provinces where temporary employment was most prevalent prior to the reform.