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The effects of partial employment protection reforms: evidence from Italy

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Listed:
  • Diego Daruich

    (University of Southern California (Marshall), United States of America)

  • Sabrina Di Addario

    (Bank of Italy)

  • Raffaele Saggio

    (University of British Columbia, Canada)

Abstract

We combine matched employer-employee data with firms’ financial records to study a 2001 Italian reform that lifted constraints on the employment of temporary contract workers while maintaining rigid employment protection regulations for employees hired under permanent contracts. Exploiting the staggered implementation of the reform across different collective bargaining agreements, we find that this policy change led to an increase in the share of temporary contracts but failed to raise employment. The reform had both winners and losers. Firms are the main winners as the reform was successful in decreasing labor costs, leading to higher profits. By contrast, young workers are the main losers since their earnings were substantially depressed following the policy change. Rent-sharing estimates show that temporary workers receive only two-thirds of the rents shared by firms with permanent workers, helping explain most of the labor costs and earnings reductions caused by the reform.

Suggested Citation

  • Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2022. "The effects of partial employment protection reforms: evidence from Italy," Temi di discussione (Economic working papers) 1390, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1390_22
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    Cited by:

    1. Drenik, Andres & Jäger, Simon & Plotkin, Pascuel & Schoefer, Benjamin, 2020. "Paying Outsourced Labor: Direct Evidence from Linked Temp Agency-Worker-Client Data," CEPR Discussion Papers 14517, C.E.P.R. Discussion Papers.
    2. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    3. Di Addario, Sabrina & Kline, Patrick & Saggio, Raffaele & Solvsten, Mikkel, 2020. "It Ain't Where You're From, It's Where You're At: Hiring Origins, Firm Heterogeneity, and Wages," Institute for Research on Labor and Employment, Working Paper Series qt6191m92m, Institute of Industrial Relations, UC Berkeley.
    4. Bertheau, Antoine & Acabbi, Edoardo & Barcelo, Cristina & Gulyas, Andreas & Lombardi, Stefano & Saggio, Raffaele, 2022. "The Unequal Cost of Job Loss across Countries," IZA Discussion Papers 15033, Institute of Labor Economics (IZA).
    5. Carbonnier, Clément & Malgouyres, Clément & Py, Loriane & Urvoy, Camille, 2022. "Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit," Journal of Public Economics, Elsevier, vol. 206(C).
    6. ASAI Yukiko & Dmitri K. KOUSTAS, 2021. "Temporary Work Contracts and Female Labor Market Outcomes," Discussion papers 21071, Research Institute of Economy, Trade and Industry (RIETI).
    7. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2019. "Employment Protection and Firm-provided Training: Quasi-experimental Evidence from a Labour Market Reform," GLO Discussion Paper Series 368, Global Labor Organization (GLO).
    8. Sergei Guriev & Biagio Speciale & Michele Tuccio, 2019. "How do Regulated and Unregulated Labor Markets Respond to Shocks? Evidence from Immigrants During the Great Recession," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 37-76.
    9. Mitra, Aruni, 2021. "The Productivity Puzzle and the Decline of Unions," MPRA Paper 110961, University Library of Munich, Germany.
    10. Brüll, Eduard, 2019. "Restrictions of fixed term employment contracts: Evidence from a German reform," ZEW Discussion Papers 19-034, ZEW - Leibniz Centre for European Economic Research.
    11. Antoine Bertheau & Edoardo Acabbi & Cristina Barceló & Andreas Gulyas & Stefano Lombardi & Raffaele Saggio, 2022. "The Unequal Consequences of Job Loss across Countries," CRC TR 224 Discussion Paper Series crctr224_2022_351, University of Bonn and University of Mannheim, Germany.
    12. Tito Boeri & Andrea Ichino & Enrico Moretti & Johanna Posch, 2021. "Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces [“Regional Wage Disparities and Migration.”]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 3249-3292.
    13. Sabrina Di Addario & Patrick Kline & Raffaele Saggio & Mikkel Soelvsten, 2022. "It ain't where you're from it's where you're at: firm effects, state dependence, and the gender wage gap," Temi di discussione (Economic working papers) 1374, Bank of Italy, Economic Research and International Relations Area.
    14. Devicienti, Francesco & Fanfani, Bernardo, 2021. "Firms' Margins of Adjustment to Wage Growth: The Case of Italian Collective Bargaining," IZA Discussion Papers 14532, Institute of Labor Economics (IZA).
    15. di Porto, Edoardo & Tealdi, Cristina, 2022. "Heterogeneous Paths to Stability," IZA Discussion Papers 15246, Institute of Labor Economics (IZA).
    16. Lacava, Chiara, 2021. "Matching and sorting across regions," ICIR Working Paper Series 44/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).

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    More about this item

    Keywords

    reform evaluation; contracts; employment; wages; profits;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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