Estimating the marginal rate of substitution between wage and employment protection

Empirical evidence supports the hypothesis that workers have a strong preference for job security. Building on this, the empirical research focused so far on the analysis of the “port-of-entry hypothesis” – namely on testing whether temporary jobs may act as a springboard towards standard employment relationships – underexploring the issue of what would make workers indifferent between the two options. This is the aim of the present paper. Using a dedicated survey on a random sample of workers from the Italian public employment service, we find that: i) workers actually require a monetary compensation to trade a non-standard job for a standard one; ii) moreover, they display lexicographic preferences over contracts, inasmuch as when they have to compare an open-ended contract to a freelance contract (chosen as the epitome of precariousness in Italy), the compensation they ask for does not depend on contract duration; on the opposite, when they compare open-ended jobs to fixed-term jobs (where only expected duration actually matters) the required compensation does not depend on the type of contract, but only on its planned duration; iii) the estimated MRS between wage and contract duration is 257 more Euros per month to accept a one-year shorter employment relationship.