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At BBVA Research, we believe that the so-called Austrian backpack could help ensure compliance with the EC's recommendations. The main reason is that it would reduce the uncertainty surrounding dismissal costs and, with the right design, encourage open ended contracts while also favoring labor mobility.
As in Great Recession, the COVID-19 crisis has once again raised the debate about the excessive rate of temporary employment, thus rekindling interest in the so-called "Austrian backpack" employment fund proposal, which seeks to reduce the disincentives of permanent contracts regarding the cost of dismissal.
