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This paper assesses the impact of product market competition on job instability as proxied by the use of fixed-term labor contracts. Using both worker data from the Spanish Labor Force Survey and firm data from the Spanish Business Strategies Survey, the author shows that job instability rises with competition. In particular, a one standard deviation increase in competition in an economic sector decreases the probability that a fixed-term worker gets an open-ended contract within that sector in a given year by more than 30%. The effect is identified by means of exogenous shifts in competition brought about by changes in legislation.
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