When Instability Becomes Permanent: Uncertainty in the Labor Market as a Determinant of Redistribution Preferences

Abstract

Although existing research reveals interesting relations explaining redistribution demand, little is known about the impact of the contract type and the macroeconomic context in shaping redistribution preferences of individuals. We analyze the Spanish dual labor market to provide causal evidence of the effect of temporal contracts in determining preferences for redistribution. To do so, exact matching is applied to Spanish data from the European Social Survey for the period 2002-2014. Furthermore, we analyze the heterogeneous effect of the contract type by studying the impact of the economic crisis starting in 2008. Our results give causal support to the insurance theory by showing that the fact of holding a temporal contract increases preferences for redistribution. Nevertheless, this effect disappears when the effect of the adverse macroeconomic context is considered. The riskier economic context makes risk perception of individuals holding permanent contracts increase, which results in stronger demand for redistribution. This macroeconomic effect determining preferences for redistribution appears to be stronger than the individual determinant of holding a specific contract type.