Contract employment as a worker discipline device

Fixed-term labor contracting has increasingly replaced regular open-ended employment in developing countries. What justifies its emergence? determines intensity? policy responses are appropriate, if any? In a two-tiered task-based model of the market, we demonstrate that within establishments, fixed-term can indeed co-exist with efficiency wage contracts as it enables firms to enforce worker discipline at strictly lower cost. Furthermore, intensity is shown increase even times rising demand, status does not likelihood job arrival. Using establishment-level data from Indian manufacturing, find evidence consistent such an assumption. Policy-wise, unveils two margins hiring distortions associated – task assignment and total —- against which merits suite oft-noted market flexibility policies be assessed.