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The Effect of EPL on the Conversion Rate of Temporary Contracts into Permanent contracts

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  • Emanuele Grassi

    () (University of Salento, Department of Economics, Mathematics and Statistics)

Abstract

This paper analyzes the effect of Employment Protection Legislation (EPL) on the conversion rate of temporary contracts into permanent ones in the same firm. Once EPL is enforced, two effects might arise: employers could tend to replace their permanent workforce with short-term employment because of the lower expected value of a filled job, but firms might also prefer to stabilize part of their temporary workforce both to reduce the uncertainty of costly job-breakups and to increase the matching surplus. Which of these two effects is dominant is ultimately an empirical question, and we exploit a natural experiment yielded by the Italian 1990 reform which introduced unjust dismissal costs for small businesses to identify the effect of EPL on the conversion rate of working and training contracts (Contratti di formazione e lavoro - CFL) into permanent ones in the same firm. We find that more stringent EPL acts positively on the conversion rates, and that the estimates remain similar for different robustness checks.

Suggested Citation

  • Emanuele Grassi, 2009. "The Effect of EPL on the Conversion Rate of Temporary Contracts into Permanent contracts," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 68(2), pages 211-231, July.
  • Handle: RePEc:gde:journl:gde_v68_n2_p211-231
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    Cited by:

    1. Emanuele Ciani & Guido de Blasio, 2015. "Getting stable: an evaluation of the incentives for permanent contracts in Italy," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-29, December.

    More about this item

    Keywords

    Dismissal Costs; Temporary Contracts; Difference-in-Differences;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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