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This paper analyzes the role of the agglomeration of highly educated employers on firms' utilization of fixed term contracts, an issue that the literature has not investigated so far. Taking advantage of a unique firm-level dataset provided by [Istituto per lo sviluppo della formazione professionale dei lavoratori = Institute for the Development of Vocational Training of Workers] ISFOL for 2010, [the authors'] findings demonstrate that the 'proximity' of graduate employers reduce significantly the firms' propensity to hire on a temporary basis. Then, [the authors] argue that knowledge spillover deriving from the human capital of employers represents a potential channel through which reducing the insider-outsider divide of labor market. Moreover, a number of econometric issues are considered to verify such a result: the skewed and bounded nature of the share of fixed term contracts, the endogeneity issues derived from the agglomeration effect as well as the cross section dependence problems affecting standard errors.

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