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Two Tier Reforms of Employment Protection: A Honeymoon Effect?

  • Tito Boeri
  • Pietro Garibaldi

Labor market reforms increasing flexibility at the margin have been recently paying out in terms of employment growth. This paper argues that two-tier labor market reforms have a transitional honeymoon, job creating effect. In a dynamic model of labor demand under uncertainty, the paper 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 labor productivity. Based on a variety of firm-level data on Italy in the period 1995-2000, we find evidence of our empirical implications.

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File URL: http://www.carloalberto.org/assets/working-papers/no.37.pdf
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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 37.

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Length: 33 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:cca:wpaper:37
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  1. Garibaldi, Pietro, 2006. "Personnel Economics in Imperfect Labour Markets," OUP Catalogue, Oxford University Press, number 9780199280674, March.
  2. Cahuc, Pierre & Postel-Vinay, Fabien, 2001. "Temporary Jobs, Employment Protection and Labor Market Performance," IZA Discussion Papers 260, Institute for the Study of Labor (IZA).
  3. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  4. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Harvard Business School Working Papers 07-048, Harvard Business School.
  5. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
  6. Messina, Julián & Vallanti, Giovanna, 2006. "Job flow dynamics and firing restrictions: evidence from Europe," Working Paper Series 0602, European Central Bank.
  7. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier.
  8. Pietro Garibaldi & Paolo Mauro, 2002. "Anatomy of employment growth," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 67-114, 04.
  9. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  10. cipollone piero & Anita Guelfi, 2003. "tax credit policy and firms' behaviour: the case of subsidy to open-end labour contract in italy," Temi di discussione (Economic working papers) 471, Bank of Italy, Economic Research and International Relations Area.
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