There is an inter-relationship between many situations inside the labor market and decisions made outside the labor market. For instance, McDonald (2000), Adsera (2004), De la Rica and Iza (2005), Blossfeld et al. (2005) and Hondroyiannis (2010) show how the economic uncertainty inside the labor market has a significant negative impact on fertility decisions. They argue that many parents decide to have children when they are expect to be able to financially support a family, not only in the current economic situation but also in the future. Haurin and Gill (1987), Haurin (1991), Robst et al. (1999) and Diaz-Serrano (2005) also find an unequivocal negative effect of labor-income uncertainty on the propensity to own one’s own home. The economic intuition behind this evidence is that individuals take into account both their present and their projected future job situation when making decisions outside the labor market (such as buying a house or having children). As a consequence, attaining a strong degree of stability in employment has been one of the historical main aspirations of the working population. Indeed, one of the main goals of trade unions is to achieve some kind of employment protection legislation (EPL) that introduces dismissal barriers in the labor market.1 However, current dismissal barriers are mostly nonperformance-based. This may lead to a lack of incentives for high productivity; a familiar example is the behavior of some academics after receiving tenure. In fact, even if a worker has the intrinsic motivation to work hard, this may be undermined by peer pressure, as other workers may be unhappy with workers who provide too much effort without incentives. This leads to the question of whether it could be useful to relate dismissal barriers to performance. In this sense, the main contribution of this paper is our experimental analysis of how labor market uncertainty affects decisions outside the labor market and vice versa (i.e., how decisions outside the labor market influence behavior in the labor market). We investigate this in a labor-market experiment in which we incorporate the opportunity for workers to invest in longterm projects. We also wish to study the importance of relating dismissal barriers to worker performance; we hypothesize that performance-based dismissal barriers could satisfy workers’ demand of stability while maintaining a high effort level from those workers once they have attained a permanent position. Our work would be applicable both to many European labor markets and to public-sector employment in most developed countries. Our baseline experimental framework is similar to that of Brown, Falk, and Fehr (2004), in which firms and workers in a labor-market setting can endogenously form long-term relationships. Firms offer contracts involving a wage and a desired effort level, and workers, after accepting a contract, choose any feasible effort irrespective of the level contractually agreed upon. With the aim of investigating the inter-relationship between decisions inside and outside the labor market, we introduce an additional stage (outside the labor market) labeled the investment stage. For simplicity, in this stage workers decide only whether or not to undertake a long-term project. If a worker chooses to do so in a given period, he must pay a fixed periodical amount from then on.2 This project will end only when he no longer pays this fixed amount (perhaps because he becomes unemployed or his salary in a period is insufficient). To capture the importance of the job stability on the subjects’ decisions of undertaking long-term projects, we make the profitability of the project depend crucially on the job situation. Only if a worker is employed for at least eight consecutive periods does the project yield positive profits.