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Employment Protection and Fertility: Evidence from the 1990 Italian Reform

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Abstract

The aim of this paper is to investigate the effect of Employment Protection Legislation (EPL) on fertility decisions of Italian working women using administrative data. We exploit a reform that introduced in 1990 costs for dismissals unmotivated by a 'fair cause' or 'justified motive' in firms below 15 employees and left firing costs unchanged for bigger firms. We use this quasi-experimental setup to study the hypothesis that increased EPL reduces future job insecurity and positively affects a female worker's proneness to take childbearing decisions. We use a difference in difference (OLS-DID) model to control for possible period-invariant sorting bias and an instrumental variable (IV-DID) model to account for time-varying endogeneity of the treatment status. We find that reduced economic insecurity following a strengthening of the EPL regime has a positive and sizable effect on fertility decisions of Italian working women. This result is robust to a number of checks regarding possible interactions with other policy reforms occurring around 1990, changes in the sample of workers and firms, and use of an alternative set of exclusion restrictions.

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File URL: ftp://www.ceistorvergata.it/repec/rpaper/RP236.pdf
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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 236.

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Length: 34 pages
Date of creation: 14 May 2012
Date of revision: 15 Apr 2013
Handle: RePEc:rtv:ceisrp:236

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: Fertility; Employment protection; Difference-in-difference; Instrumental variables; Policy evaluations.;

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References

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  1. Kugler, Adriana & Pica, Giovanni, 2005. "Effects of Employment Protection on Worker and Job Flows: Evidence from the 1990 Italian Reform," IZA Discussion Papers 1743, Institute for the Study of Labor (IZA).
  2. Alicia Adsera, 2005. "Vanishing Children: From High Unemployment to Low Fertility in Developed Countries," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 189-193, May.
  3. Marco Leonardi & Giovanni Pica, 2007. "Employment Protection Legislation and Wages," Working Papers, Utrecht School of Economics 07-01, Utrecht School of Economics.
  4. Emilia Del Bono & Massimiliano Bratti & Daniela Vuri, 2004. "New mothers’ labour force participation in Italy: the role of job characteristics," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp05_04, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  5. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  6. Del Bono, Emilia & Vuri, Daniela, 2011. "Job mobility and the gender wage gap in Italy," Labour Economics, Elsevier, Elsevier, vol. 18(1), pages 130-142, January.
  7. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, Elsevier, vol. 15(3), pages 482-511, June.
  8. Mancini Massimo & Pappalardo Carmine, 2006. "Evaluating The Impact of Labour Market Regulation on the Size Growth of Italian Firms," Politica economica, Società editrice il Mulino, Società editrice il Mulino, issue 3, pages 399.
  9. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  10. Marco Leonardi & Giovanni Pica, 2012. "Who pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Working Papers 436, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  11. James J. Heckman & Sergio Urzua & Edward Vytlacil, 2009. "Understanding Instrumental Variables in Models with Essential Heterogeneity," Working Papers, Geary Institute, University College Dublin 200941, Geary Institute, University College Dublin.
  12. Alberto Abadie, 2005. "Semiparametric Difference-in-Differences Estimators," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 1-19.
  13. Pedro Mira & Namkee Ahn, 2001. "Job bust, baby bust?: Evidence from Spain," Journal of Population Economics, Springer, Springer, vol. 14(3), pages 505-521.
  14. Sara Rica & Amaia Iza, 2005. "Career Planning in Spain: Do Fixed-term Contracts Delay Marriage and Parenthood?," Review of Economics of the Household, Springer, Springer, vol. 3(1), pages 49-73, November.
  15. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, Elsevier, vol. 34(4), pages 851-879, June.
  16. Sumon Kumar Bhaumik & Jeffrey Nugent, 2011. "Real options and demographic decisions: empirical evidence from East and West Germany," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(21), pages 2739-2749.
  17. Daniela Del Boca & Silvia Pasqua & Chiara Pronzato, 2004. "Employment and Fertility Decisions in Italy, France and the U.K," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp08_04, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  18. Michaela Kreyenfeld, 2005. "Economic uncertainty and fertility postponement: evidence from German panel data," MPIDR Working Papers WP-2005-034, Max Planck Institute for Demographic Research, Rostock, Germany.
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Cited by:
  1. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 123(12), pages 1236-1278, December.

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