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Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform

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Author Info

  • Kugler, Adriana

    ()
    (Georgetown University)

  • Pica, Giovanni

    ()
    (University of Salerno)

Abstract

This paper uses the Italian Social Security employer-employee panel to study the effects of the Italian reform of 1990 on worker and job flows. We exploit the fact that this reform increased unjust dismissal costs for firms below 15 employees, while leaving dismissal costs unchanged for bigger firms, to set up a natural experiment research design. We find that the increase in dismissal costs decreased accessions and separations for workers in small relative to big firms, especially in sectors with higher employment volatility. Moreover, we find that the reform reduced firms' employment adjustments on the internal margin as well as entry rates while increasing exit rates.

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File URL: http://ftp.iza.org/dp1743.pdf
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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1743.

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Length: 24 pages
Date of creation: Sep 2005
Date of revision:
Publication status: published in: Labour Economics, 2008, 15 (1), 78-95
Handle: RePEc:iza:izadps:dp1743

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Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
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Web page: http://www.iza.org

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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
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Related research

Keywords: unjust dismissal costs; European unemployment; firms' entry and exit; employment volatility;

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References

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  1. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  2. Daron Acemoglu & Joshua Angrist, 1998. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Working papers 98-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  4. Bertola, Giuseppe & Rogerson, Richard, 1996. "Institutions and Labour Reallocation," CEPR Discussion Papers 1519, C.E.P.R. Discussion Papers.
  5. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Kugler, Adriana & Pica, Giovanni, 2003. "The effects of employment protection and product market regulations on the Italian labor market," Discussion Paper Series In Economics And Econometrics 0310, Economics Division, School of Social Sciences, University of Southampton.
  7. Adriana Kugler & Giovanni Pica, 2003. "Effects of employment protection and product market regulations on the Italian labor market," Economics Working Papers 722, Department of Economics and Business, Universitat Pompeu Fabra.
  8. David H. Autor & John J. Donohue III & Stewart J. Schwab, 2003. "The Costs of Wrongful-Discharge Laws," NBER Working Papers 9425, National Bureau of Economic Research, Inc.
  9. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 2003-12, FEDEA.
  10. Jennifer Hunt, 1994. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," NBER Working Papers 4825, National Bureau of Economic Research, Inc.
  11. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
  12. Friesen, Jane, 2005. "Statutory firing costs and lay-offs in Canada," Labour Economics, Elsevier, vol. 12(2), pages 147-168, April.
  13. Andrea Borgarello & Pietro Garibaldi & Lia Pacelli, 2003. "Employment Protection Legislation and the Size of Firms," LABORatorio R. Revelli Working Papers Series 23, LABORatorio R. Revelli, Centre for Employment Studies.
  14. Ichino, Andrea & Riphahn, Regina T., 2001. "The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation," IZA Discussion Papers 385, Institute for the Study of Labor (IZA).
  15. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  16. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  17. Adriana Kugler, 1999. "The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform," International Tax and Public Finance, Springer, vol. 6(3), pages 389-410, August.
  18. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
  19. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  20. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  21. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
  22. Alejandro Micco & Carmen Pag├ęs-Serra, 2004. "Employment Protection and Gross Job Flows: A Differences-in-Differences Approach," Research Department Publications 4365, Inter-American Development Bank, Research Department.
  23. Joshua D. Angrist & Adriana D. Kugler, 2001. "Protective or counter-productive? Labor market institutions and the effect of immigration on EU natives," Economics Working Papers 587, Department of Economics and Business, Universitat Pompeu Fabra.
  24. Paul Oyer & Scott Schaefer, 2000. "Layoffs and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 345-358, Summer.
  25. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  26. Justin Wolfers, 2005. "Measuring the Effects of Employment Protection on Job Flows: Evidence from Seasonal Cycles," Computing in Economics and Finance 2005 98, Society for Computational Economics.
  27. Fabiano Schivardi & Roberto Torrini, 2004. "Firm size distribution and employment protection legislation in Italy," Temi di discussione (Economic working papers) 504, Bank of Italy, Economic Research and International Relations Area.
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