Accounting for the permanent vs temporary wage gaps among young adults: Three European countries in perspective

• Date: 01 June 2019
• Author: Antonella D'AGOSTINO,Thomas GRANDNER,Andrea REGOLI,Dieter GSTACH
• DOI: http://doi.org/10.1111/ilr.12075
• Published date: 01 June 2019

International Labour Review, Vol. 158 (2019), No. 2

Copyright © The authors 2019

Journal compilation © International Labour Organization 2019

Accounting for the permanent

vs temporary wage gaps among

young adults: Three European countries

in perspective

Andrea REGOLI,* Antonella D’AGOSTINO,*

Thomas GRANDNER,** Dieter GSTACH***

Abstract. This article analyses wage differentials between permanent and tempor-

ary workers in the 25–40 age bracket using the 20 10 European Union Statistics

on Income and Living Conditions (EU-SILC) wave data for France, Germany

and Italy. Applying a Recentered Inuence Function (RIF) regression and a re-

weighting estimation technique, we investigate the contribution of personal and

job characteristics to wage differentials across the wage distribution. Results point

to a large unexplained component of the wage gap across the whole distribution

in Italy, while this component is weaker in France among highly paid employees

and insignicant in Germany. These ndings highlight potential policy consider-

ations and areas for future research.

Ability to work steadily and become economically self-sufcient is often

considered to be one of the most important markers of a successful

transition to adulthood. Nowadays, if and when young adults manage to

enter the labour market, they are faced with a signicant increase in the use

of temporary or xed-term contracts (FTCs). The increase was particularly

pronounced at the beginning of the recent global economic crisis. The nature

of FTCs can be considered to be a “societal construction” dependent on

the welfare regime and labour market regulations in force.1 The reforms to

* Department of Business and Quantitative Studies, University of Naples Parthenope,

emails: andrea.regoli@uniparthenope.it; antonella.dagostino@uniparthenope.it. ** Institute for

Labor Economics, Vienna University of Economics and Business, email: thomas.grandner@

wu.ac.at. *** Institute for Quantitative Economics, Vienna University of Economics and Busi-

ness, email: dieter.gstach@wu.ac.at.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

1 For example, in the early 2000s, empirical analyses comparing institutional differences

in four countries (France, Spain, Sweden and the United Kingdom) showed that the different

levels of temporary work and the degree of job insecurity associated with temporary employ-

ment depend on two main institutional dimensions: unemployment welfare regimes (Gallie and

Paugam, 2000) and industrial relations (IRES, 2000).

International Labour Review338

employment protection legislation (EPL) carried out over the past 30 years

in many of the member countries of the Organisation for Economic

Co-operation and Development (OECD) have made it easier to hire workers

under temporary contracts and have introduced new kinds of exible FTCs,

with zero or low dismissal costs for employers. As a result, the share of work-

ers with FTCs in total wage employment has increased steadily and the in-

equalities between permanent and temporary workers have been magnied,

sparking a debate over the existence of a segmented labour market (Doeringer

and Piore, 1971; Reich, Gordon and Edwards, 1973; Cazes and de Laiglesia,

2015).2 The disadvantages faced by temporary relative to permanent workers

are multi-faceted, usually including weaker bargaining power leading to lower

wages and lower non-wage compensation; higher job insecurity and therefore

higher unemployment risks; less access to unemployment benets in the event

of job loss; less likelihood of participating in on-the-job training activities;

lower levels of job satisfaction; lower capacity for credit access; worse social

security prospects; and lower fertility rates (e.g. Booth, Francesconi and Frank,

2002; OECD, 2002 and 200 4; Bentolila et al., 2010; Carrieri et al., 2012). The

risk of pronounced segmentation in the labour market is even stronger when

there is little mobility between the two groups, in particular when FTCs trap

people in precarious living conditions rather than being a rst step towards a

stable job (Boeri and Garibaldi, 2007; Picchio, 20 08).

Two further considerations have to be mentioned in order to highlight

the social problem of job precariousness. First, evidence suggests that across

Europe the proportion of workers on FTCs decreases with increasing age

(Eurostat, 2009). Indeed, Eurostat reports that in 20 08 some 40 per cent of em-

ployees aged 15 to 24 were working under temporary contracts, whereas this

applied to only about 20 per cent of employees aged 25 to 29, and only 10 per

cent of those aged 30 to 54. Second, while temporary work may be a deliber-

ate choice, it most often reects difculty in nding a permanent job. Indeed,

according to the ILO (2012), the growth of temporary employment among

young people, in particular since the global economic crisis, suggests that this

type of work is increasingly taken up because it is the only option available.

In the light of the above, we focus on the “older” segment of young

adults, aged between 25 and 40. The rationale behind this choice is that people

in this group are supposed to have completed their formal education, although

their professional paths may still be uncertain and they may not yet have be-

come economically self-sufcient. This is particularly the case in Italy, where

the transition to adulthood is generally postponed relative to other European

countries (see, for example, Aassve, Iacovou and Mencarini, 20 06; Billari, 20 01;

D’Agostino and Regoli, 2013). Although several empirical analyses have fo-

cused on the wage penalty for all temporary employees of working age (see

2 Labour market segmentation can occur across a number of dimensions. The coexist-

ence of two different types of contract (namely FTCs versus permanent contracts) is found

to drive labour market differences between workers and prevent mobility from xed-term to-

wards permanent jobs.