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Two Tier Reforms of Employment Protection: a Honeymoon Effect?

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  • Tito Boeri
  • Pietro Garibaldi

Abstract

Labour market reforms increasing flexibility 'at the margin' have been recently paying out in terms of employment growth. This article argues that two-tier labour market reforms have a transitional 'honeymoon', job creating effect. In a dynamic model of labour demand under uncertainty, the article predicts that in the aftermath of reforms, beyond an increase in employment, there should be a reduction in 'employment inaction' and in the mean and cross-sectional variance of labour productivity. Based on a variety of firm-level data on Italy in the period 1995-2000, we find evidence of our empirical implications. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • Tito Boeri & Pietro Garibaldi, 2007. "Two Tier Reforms of Employment Protection: a Honeymoon Effect?," Economic Journal, Royal Economic Society, vol. 117(521), pages 357-385, June.
  • Handle: RePEc:ecj:econjl:v:117:y:2007:i:521:p:357-385
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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