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The Italian Labor Market Reform: An Evaluation of the Jobs Act Using the Prometeia DSGE Model

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  • Michele Catalano

    (Prometeia Associazione per le Previsioni Econometriche)

  • Emilia Pezzolla

    (Prometeia Associazione per le Previsioni Econometriche)

Abstract

We evaluate the impact of Italian labor market reform included in the so-called Jobs Act using the Prometeia Dynamic Stochastic General Equilibrium (DSGE) model for the Italian economy. Following Krause and Lubik (J Monet Econ 54(3):706–727, 2007) and AlShehabi (J Macroecon 43:285–299, 2015), we introduce into the search and matching framework endogenous productivity-dependent firing costs which allow us to account for the innovations provided for by the reform. We simulate the introduction of the new contract with increasing protection, and analyze the role of different compensation schemes in dismissal. Moreover, we evaluate the effects of an increase in the functional flexibility, and strengthening the social security system. In general, we find a positive impact on GDP and aggregate demand. However, this positive effect comes at the expense of reductions in the labor income share and average wage, with a slight temporary decline in the unemployment rate that remains permanently higher in the long run.

Suggested Citation

  • Michele Catalano & Emilia Pezzolla, 2017. "The Italian Labor Market Reform: An Evaluation of the Jobs Act Using the Prometeia DSGE Model," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(2), pages 209-238, July.
    • Handle: RePEc:spr:italej:v:3:y:2017:i:2:d:10.1007_s40797-017-0057-z
    DOI: 10.1007/s40797-017-0057-z
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    References listed on IDEAS

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    12. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2006. "Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area," CESifo Working Paper Series 1644, CESifo.
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    Cited by:

    1. Marco Guerrazzi & Ilham Ksebi, 2019. "Measuring Unemployment by Means of Official Data and Administrative Records: Empirical and Theoretical Perspectives," QUADERNI DI ECONOMIA DEL LAVORO, FrancoAngeli Editore, vol. 2019(110), pages 17-49.
    2. Josué Diwambuena & Raquel Fonseca & Stefan Schubert, 2021. "Italian Labour Frictions and Wage Rigidities in an Estimated DSGE," BEMPS - Bozen Economics & Management Paper Series BEMPS88, Faculty of Economics and Management at the Free University of Bozen.
    3. Elena Bastianelli & Daniele Vignoli, 2022. "The Gendered Relationship Between (Old and New Forms of) Employment Instability and Union Dissolution," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 41(3), pages 1021-1048, June.
    4. Luca Cattani & Giovanni Guidetti & Giulio Pedrini, 2021. "Work Flexibility and Workplace Training in Italy Before and After the Jobs Act Reform," Review of Economics and Institutions, Università di Perugia, vol. 12(1).
    5. Shobande Olatunji Abdul & Shodipe Oladimeji Tomiwa, 2019. "New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model," Economics and Business, Sciendo, vol. 33(1), pages 152-169, January.
    6. Elena Bastianelli & Daniele Vignoli, 2021. "Instability of Employment Careers and Union Dissolution. A Complex Micro-level Relation," Econometrics Working Papers Archive 2021_04, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".

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    More about this item

    Keywords

    DSGE model; Labor market; Search and matching; Italy; Jobs act;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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