The use of permanent contracts across Spanish regions : Do regional wage subsidies work ? June 2006 FIRST DRAFT ( INCOMPLETE

We present an analysis of the use of permanent employment contracts across Spanish regions during the period 1995-2002. This paper concerns the evaluation of regional wage subsidies designed to foster the creation of permanent jobs in the Spanish economy since 1997. Since we have longitudinal data we apply a difference-in-differences estimator to identify de potential average effect of the treatment for this policy. We estimate the incidence of this policy over the permanent employment rate and over the transition rate to a permanent employment using the panel data dimension of the Spanish Labor Force Survey and Social Security Records, respectively. Our main results are that this policy shows a small positive effect over the rate of permanent contracts, being this due to a highly decreasing pattern showed by the treatment effect over the duration of the policy implementation. The effect is larger for females than for males and is the largest for young workers. With respect to the effect of these policies over the transition rates, we find that the direct transition from temporary to permanent employment is almost unaffected but the one from unemployment to permanent employment is considerably larger, specially for females and also for young workers. * We wish to thank Lola Morales for her help in collecting all the information about regional wage subsidies. We also wish to thank all the participants of the Workshop on Policy Evaluation celebrated in Seville in December 2005 and especially to Raquel Carrasco, Michael Lechner, Sergi Jimenez, Alberto Abadie and Ernesto Villanueva for their helpful comments