The Dynamics of Unemployment, Temporary and Permanent Employment in Italy

This chapter assesses whether temporary jobs have been springboards to regular employment or to dead-end positions in Italy, using for the purpose the 2000, 2002, and 2004 waves of the Survey of Italian Households' Income and Wealth. The estimation of a bivariate dynamic unobserved effects probit model to predict the probability of having a permanent position given the lagged labour market state shows that, ceteris paribus, having a temporary contract today, rather than being unemployed, increases the probability of having a permanent job two years later by about 13.7-16.2 percentage points. This evidence suggests that, given observable and unobservable characteristics, temporary contracts in Italy are stepping-stones to permanent jobs. They enable individuals to leave unemployment by giving them the opportunity to acquire general (and possibly) specific skills so that they are permanent employable afterwards. The estimation of a dynamic discrete mixture and linear probability models assesses the robustness of the stepping-stone effect to the parametric assumptions about the individual heterogeneity. The average partial effects estimated using these two approaches, which were nonparametric in the specification of the unobserved heterogeneity, are in line with those obtained with dynamic nonlinear unobserved effects probit models.