Escaping Social Pressure: Fixed-Term Contracts in Multi-Establishment Firms

Abstract : We investigate the impact of local social pressure on the choice of employment contracts made by firms. Using linked employer-employee data, we show that secondary establishments located closer to headquarters have higher shares of fixed-term contracts in hiring than those located further away whenever firms' headquarters are located in selfish communities. In contrast, when firms' headquarters belong to unselfish communities, the impact of distance to headquarters on the share of fixed-term contracts turns out to be positive. We show that these findings can only be explained by local social pressure. When the local community at the firm's headquarters is selfish, i.e. cares about dismissals only when they take place at short distance, CEOs are under pressure to avoid dismissing workers close to headquarters. By adding to the adjustment costs associated with open-ended contracts, this creates an incentive for them to rely more on fixed-term contracts, in an attempt to escape social pressure when hiring workers close to headquarters.
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Andrea Bassanini, Eve Caroli, François Fontaine, Antoine Rebérioux. Escaping Social Pressure: Fixed-Term Contracts in Multi-Establishment Firms. PSE Working Papers n°2018-11. 2018. 〈halshs-01724188v1〉

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