Precarious and less well-paid? Wage differences between permanent and fixed-term contracts across the EU countries

This paper analyses the main features of the wage differences between permanent and fixed-term workers and what sources are driving these differences, including the role of labour market institutions. We analyse wage differences between permanent and fixed-term contracts across EU countries using data from the European Structure of Earnings Survey. We find that after controlling for individual and job characteristics, workers on permanent contracts earn on average about 15% more than workers on fixed-term contracts with similar observable characteristics. The permanent contract wage premium is higher for men, workers at middle age and with middle education, and performing non-elementary occupations. We also find that permanent workers enjoy a higher education and age wage premium. We explore cross-country differences in the wage premium for permanent workers and correlate them with indicators of labour market institutions. Results indicate that a high wage premium for workers with permanent contracts is associated with high levels of employment protection for workers on permanent contracts, a high share of temporary employment in the economy, lengthy periods of unemployment benefit entitlement, and low minimum wages.