Successful return to work during labor market liberalization: the case of Italian injured workers

We investigate the long term employment outcomes of Italian injured workers over a time period when the country introduced policy reforms that increased labor market flexibility but reduced job security. Using an employer-employee database matched with injury data, we observe that both before and after the reforms almost one-fourth of injured workers were no longer employed 3 years after their “first” return to work. We note a slight decrease in this share after the reforms (from 24 to 22%) while we find a decline in workers’ job security as measured by their probability of re-employment in permanent contracts. We use multinomial logit estimates to study how liberalization reforms were associated with a changing role of individual, firm, and injury characteristics in shaping long-term employment outcomes of injured workers after their recovery period. Heterogeneity analyses show that low wage employees, women, immigrants, and individuals who suffered a more severe injury were penalized more. Pre-injury individual characteristics became stronger predictors of long-term employment than firms’ characteristics. In particular, we find that the advantage provided by working in larger firms was significant before the liberalization reforms, but disappeared afterward, while the advantage provided by human capital became more relevant after the liberalization.