Bargaining and Temporary Employment

Abstract

This article studies the behavior of the …rm when it is searching to …ll a vacancy. The principal hypothesis is that the …rm can o¤er two kinds of contracts to the workers, short-term or long-term contracts. The short-term contract is like a probationary stage in which the …rm can learn the worker’s type. After this stage the …rm can propose a long-term contract to the worker, or it can decide to …nd another worker. We suppose that the …rm and the worker bargain over the wage of both types of contract, and that the worker’s bargaining power is di¤erent according to the type of contract. We utilize this framework to study the …rms’ optimal policy choice and its welfare implications.