Taking lemons for a trial run: does type of job exit affect the risk of entering fixed-term employment in Germany?

A central argument for the deregulation of employment contracts is that fixed-term contracts boost employment of jobseekers with uncertain productivity by giving employers a tool to screen such applicants over a longer period of time before permanent hire. We test this proposition by comparing the risk of entering fixed-term employment for individually laid-off workers with that for individuals who have left their previous job for other reasons. This strategy is based on the assumption that in the German context individual lay-offs create uncertainty about jobseekers’ productivity. We use data on work exits and subsequent labour market re-entry of the prime-age workforce in Germany from waves 2000–2013 of the Socio-Economic Panel. Our results show that the risk of fixed-term employment is substantively smaller after voluntary job exits but reveal only a small and statistically insignificant risk difference between individual lay-offs and workplace closures after adjusting for differences in socio-economic background and characteristics of the previous job. These findings challenge the view that employers use fixed-term contracts as an instrument to screen specific groups of workers whose productivity is highly uncertain, at least with regard to recent career disruptions.