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The Effects of Partial Employment Protection Reforms: Evidence from Italy

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  • Diego Daruich

    (University of Southern California (Marshall))

  • Sabrina Di Addario

    (Bank of Italy)

  • Raffaele Saggio

    (University of British Columbia)

Abstract

We combine matched employer-employee data with firms’ financial records tostudy a 2001 Italian reform that lifted constraints on the employment of temporary contract workers while maintaining rigid employment protection regulationsfor employees hired under permanent employment contracts. Exploiting the stag-gered implementation of the reform across different sectoral collective bargainingagreements, we find that this policy change led to an increase in the incidence oftemporary contracts but failed to raise employment significantly. The reform hadboth winners and losers. Firms appear to be the main winners as the reform wassuccessful in decreasing labor costs, leading to higher profits. By contrast, youngworkers are the main losers since their earnings were substantially depressed follow-ing the policy change. Rent-sharing estimates show that workers on a temporarycontract receive only 68% of the rents shared by firms with workers hired under apermanent contract, helping explain the post-reform labor cost reductions.

Suggested Citation

  • Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2020. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," Development Working Papers 463, Centro Studi Luca d'Agliano, University of Milano, revised 27 Apr 2020.
  • Handle: RePEc:csl:devewp:463
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    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. 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).
    5. 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).
    6. di Porto, Edoardo & Tealdi, Cristina, 2022. "Heterogeneous Paths to Stability," IZA Discussion Papers 15246, Institute of Labor Economics (IZA).
    7. 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.
    8. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2019. "Employment Protection and Firm-Provided Training: Quasi-Experimental Evidence from a Labour Market Reform," IZA Discussion Papers 12773, Institute of Labor Economics (IZA).
    9. 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).
    10. 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.
    11. Acabbi, Edoardo & Barcelo, Cristina & Bertheau, Antoine & Gulyas, Andreas & Lombardi, Stefano & Saggio, Raffaele, 2022. "The unequal consequences of job loss across countries," Working Paper Series 2022:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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    15. 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.
    16. 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.

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    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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