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The Perverse Effects of Job-security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design

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  • Alexander Hijzen
  • Leopoldo Mondauto
  • Stefano Scarpetta

Abstract

This paper analyses the impact of employment protection (EP) on the composition of the workforce and worker turnover using a unique firm-level dataset for Italy. The impact of employment protection is analysed by means of a regression discontinuity design (RDD) that exploits the variation in EP provisions across firms below and above a size threshold. Using our RDD approach, we show that EP increases worker reallocation, suggesting that EP tends to reduce rather to increase worker security on average. We further show that this can be entirely explained by the fact that firms facing more stringent EP make a greater use of workers on temporary contracts. Our preferred estimates suggest that the discontinuity in EP increases the incidence of temporary work by 2-2.5 percentage points around the threshold. Moreover, further analysis suggests that the effect of employment protection persists among larger firms well beyond the threshold and may account for about 20% of the overall incidence of temporary work. There is also evidence that EP reduces labour productivity and this effect is to an important extent due to the impact of EP on worker reallocation and the incidence of temporary work. Cet article analyse l'impact de la protection de l'emploi (PE) sur la composition de la main-d’oeuvre et la rotation des travailleurs en utilisant un ensemble unique de données au niveau des entreprises pour l'Italie. L'impact de la protection de l'emploi est analysé au moyen d’une méthode de régression par discontinuité (RD) qui exploite la variation des dispositions de la PE entre les entreprises de taille inférieure ou supérieure à un certain seuil. À l’aide de notre approche RD, nous montrons que la PE accroît la réallocation des travailleurs, indiquant que la PE a tendance, en moyenne, à réduire plutôt qu’à accroître la sécurité de l’emploi des travailleurs. Nous montrons de plus que cela peut être entièrement expliqué par le fait que les entreprises confrontées à une PE plus stricte recourent plus largement à des travailleurs sous contrats temporaires. Nos estimations privilégiées suggèrent que la discontinuité de la PE augmente l'incidence du travail temporaire de 2 à 2,5 points de pourcentage autour de la valeur seuil. En outre, une analyse plus détaillée suggère que l'effet de la protection de l'emploi persiste parmi les grandes entreprises bien au-delà du seuil et peut représenter environ 20% de l'incidence globale du travail temporaire. Il semble également que la PE réduit la productivité du travail et que cet effet est dans une large mesure dû à l'impact de la PE sur la réallocation des travailleurs et l'incidence du travail temporaire.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 151.

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Date of creation: 04 Jul 2013
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Handle: RePEc:oec:elsaab:151-en

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Keywords: employment protection; temporary work contract; worker reallocation; labour market duality;

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References

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Cited by:
  1. Gal, Peter N. & Hijzen, Alexander & Wolf, Zoltan, 2013. "The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence," IZA Discussion Papers 7404, Institute for the Study of Labor (IZA).

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