IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp16262.html
   My bibliography  Save this paper

Labor Market Regulation and Firm Adjustments in Skill Demand

Author

Listed:
  • Bottasso, Anna

    (CIRIEC)

  • Bratti, Massimiliano

    (Università degli Studi di Milano)

  • Cardullo, Gabriele

    (University of Genova)

  • Conti, Maurizio

    (University of Genoa)

  • Sulis, Giovanni

    (University of Cagliari)

Abstract

We study how changes in labor market regulation may trigger firm adjustments in skill demand. Leveraging rich administrative data from Italy, we investigate the effects of a reform that reduced firing costs for permanent employees and tightened temporary contracts' regulation to increase job stability. By using a difference-in-differences design, we document that the reform had unintended effects, inducing firms to increase layoffs of unskilled permanent employees and reducing hirings of unskilled workers on temporary contracts, but had no effect on skilled workers or permanent hirings. A theoretical search and matching model with heterogeneous skills and contract durations rationalizes our main findings.

Suggested Citation

  • Bottasso, Anna & Bratti, Massimiliano & Cardullo, Gabriele & Conti, Maurizio & Sulis, Giovanni, 2023. "Labor Market Regulation and Firm Adjustments in Skill Demand," IZA Discussion Papers 16262, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16262
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp16262.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hijzen, Alexander & Mondauto, Leopoldo & Scarpetta, Stefano, 2017. "The impact of employment protection on temporary employment: Evidence from a regression discontinuity design," Labour Economics, Elsevier, vol. 46(C), pages 64-76.
    2. Davezies, Laurent & Le Barbanchon, Thomas, 2017. "Regression discontinuity design with continuous measurement error in the running variable," Journal of Econometrics, Elsevier, vol. 200(2), pages 260-281.
    3. Matteo Cacciatore & Giuseppe Fiori, 2016. "The Macroeconomic Effects of Goods and Labor Marlet Deregulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 1-24, April.
    4. Pierre Cahuc & Olivier Charlot & Franck Malherbet & Helène Benghalem & Emeline Limon, 2020. "Taxation of Temporary Jobs: Good Intentions with Bad Outcomes?," The Economic Journal, Royal Economic Society, vol. 130(626), pages 422-445.
    5. Cahuc, Pierre & Carry, Pauline & Malherbet, Franck & Martins, Pedro, 2022. "Employment Effects of Restricting Fixed-Term Contracts: Theory and Evidence," CEPR Discussion Papers 16875, C.E.P.R. Discussion Papers.
    6. Lorenzo Cappellari & Carlo Dell’Aringa & Marco Leonardi, 2012. "Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms," Economic Journal, Royal Economic Society, vol. 122(562), pages 188-215, August.
    7. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 533-572, May.
    8. Philippe Aghion & Antonin Bergeaud & John Van Reenen, 2023. "The Impact of Regulation on Innovation," American Economic Review, American Economic Association, vol. 113(11), pages 2894-2936, November.
    9. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    10. Kugler, Adriana & Pica, Giovanni, 2008. "Effects of employment protection on worker and job flows: Evidence from the 1990 Italian reform," Labour Economics, Elsevier, vol. 15(1), pages 78-95, February.
    11. Gabriele Ciminelli & Romain Duval & Davide Furceri, 2022. "Employment Protection Deregulation and Labor Shares in Advanced Economies," The Review of Economics and Statistics, MIT Press, vol. 104(6), pages 1174-1190, November.
    12. Giuseppina Gianfreda & Giovanna Vallanti, 2017. "Institutions' and Firms' Adjustments: Measuring the Impact of Courts' Delays on Job Flows and Productivity," Journal of Law and Economics, University of Chicago Press, vol. 60(1), pages 135-172.
    13. Bottasso, Anna & Conti, Maurizio & Sulis, Giovanni, 2017. "Firm dynamics and employment protection: Evidence from sectoral data," Labour Economics, Elsevier, vol. 48(C), pages 35-53.
    14. Bassanini, Andrea & Garnero, Andrea, 2013. "Dismissal protection and worker flows in OECD countries: Evidence from cross-country/cross-industry data," Labour Economics, Elsevier, vol. 21(C), pages 25-41.
    15. Cacciatore, Matteo & Duval, Romain & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Market reforms in the time of imbalance," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 69-93.
    16. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    17. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, vol. 15(3), pages 482-511, June.
    18. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2016. "The Cyclicality of the Opportunity Cost of Employment," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1563-1618.
    19. Philippe Aghion, 2021. "The impact of regulation on innovation," CentrePiece - The magazine for economic performance 607, Centre for Economic Performance, LSE.
    20. Centeno, Mário & Novo, Álvaro A., 2012. "Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier system," Labour Economics, Elsevier, vol. 19(3), pages 320-328.
    21. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    22. di Porto, Edoardo & Tealdi, Cristina, 2022. "Heterogeneous Paths to Stability," IZA Discussion Papers 15246, Institute of Labor Economics (IZA).
    23. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    24. Pedro S. Martins, 2009. "Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 257-279, April.
    25. David H. Autor & David Dorn & Gordon H. Hanson & Jae Song, 2014. "Trade Adjustment: Worker-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1799-1860.
    26. Andrea Bassanini & Federico Cingano, 2019. "Before It Gets Better: The Short-Term Employment Costs of Regulatory Reforms," ILR Review, Cornell University, ILR School, vol. 72(1), pages 127-157, January.
    27. Juan J. Dolado & Salvador Ortigueira & Rodolfo Stucchi, 2016. "Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(4), pages 421-459, November.
    28. O’Higgins Niall & Pica Giovanni, 2020. "Complementarities between Labour Market Institutions and their Causal Impact on Youth Labour Market Outcomes," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(3), pages 1-37, July.
    29. Rachel Griffith & Gareth Macartney, 2014. "Employment Protection Legislation, Multinational Firms, and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 135-150, March.
    30. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
    31. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
    32. Ardito Chiara & Berton Fabio & Pacelli Lia & Passerini Filippo, 2022. "Employment Protection, Workforce Mix and Firm Performance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 22(3), pages 611-621, July.
    33. repec:hal:pseose:hal-00813034 is not listed on IDEAS
    34. Fabio Berton & Francesco Devicienti & Sara Grubanov-Boskovic, 2016. "Employment protection legislation and mismatch: evidence from a reform," LABORatorio R. Revelli Working Papers Series 151, LABORatorio R. Revelli, Centre for Employment Studies.
    35. Paul Oyer & Scott Schaefer, 2002. "Litigation Costs and Returns to Experience," American Economic Review, American Economic Association, vol. 92(3), pages 683-705, June.
    36. Boeri, Tito & Garibaldi, Pietro, 2019. "A tale of comprehensive labor market reforms: Evidence from the Italian jobs act," Labour Economics, Elsevier, vol. 59(C), pages 33-48.
    37. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.
    38. Paolo Sestito & Eliana Viviano, 2018. "Firing costs and firm hiring: evidence from an Italian reform," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(93), pages 101-130.
    39. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 533-572, May.
    40. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    41. Leonardi, Marco & Pica, Giovanni, 2007. "Employment Protection Legislation and Wages," IZA Discussion Papers 2680, Institute of Labor Economics (IZA).
    42. Renato Faccini, 2014. "Reassessing Labour Market Reforms: Temporary Contracts as a Screening Device," Economic Journal, Royal Economic Society, vol. 124(575), pages 167-200, March.
    43. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2021. "Employment protection and firm-provided training in dual labour markets," Labour Economics, Elsevier, vol. 69(C).
    44. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1169-1213.
    45. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
    46. Bjuggren, Carl Magnus, 2013. "The Effect of Employment Protection Rules on Firm Productivity - A Natural Experiment," HUI Working Papers 82, HUI Research, revised 30 Oct 2013.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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).
    2. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2021. "Employment protection and firm-provided training in dual labour markets," Labour Economics, Elsevier, vol. 69(C).
    3. Bratti, Massimiliano & Conti, Maurizio & Sulis, Giovanni, 2018. "Employment Protection, Temporary Contracts and Firm-Provided Training: Evidence from Italy," IZA Discussion Papers 11339, Institute of Labor Economics (IZA).
    4. Maria De Paola & Roberto Nisticò & Vincenzo Scoppa, 2020. "Fertility Decisions And Employment Protection: The Unintended Consequences Of The Italian Jobs Act," Working Papers 202003, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    5. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F., 2019. "Dual Labour Markets Revisited," IZA Discussion Papers 12126, Institute of Labor Economics (IZA).
    6. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2880-2942.
    7. Pawel Chrostek & Krzysztof Karbownik & Michal Myck, 2024. "Labor Market Externalities of Pre-Retirement Employment Protection," CESifo Working Paper Series 11078, CESifo.
    8. Giovanna Vallanti & Giuseppina Gianfreda, 2021. "Informality, regulation and productivity: do small firms escape EPL through shadow employment?," Small Business Economics, Springer, vol. 57(3), pages 1383-1412, October.
    9. Marco Bertoni & Simone Chinetti & Roberto Nisticò, 2023. "Employment Protection, Job Insecurity, and Job Mobility," CSEF Working Papers 684, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    10. Heywood, John S. & O'Mahony, Mary & Siebert, W. Stanley & Rincon-Aznar, Ana, 2018. "The Impact of Employment Protection on the Industrial Wage Structure," IZA Discussion Papers 11788, Institute of Labor Economics (IZA).
    11. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    12. Jiménez, Bruno & Rendon, Silvio, 2023. "Does employment protection unprotect workers? The labor market effects of job reinstatements in Peru," Labour Economics, Elsevier, vol. 80(C).
    13. Boeri, Tito & Garibaldi, Pietro, 2019. "A tale of comprehensive labor market reforms: Evidence from the Italian jobs act," Labour Economics, Elsevier, vol. 59(C), pages 33-48.
    14. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 533-572, May.
    15. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    16. Jonathan Créchet, 2023. "Risk Sharing in a Dual Labor Market," Working Papers 2307E, University of Ottawa, Department of Economics.
    17. Centeno, Mario & Novo, Alvaro A., 2014. "Paying for Others' Protection: Causal Evidence on Wages in a Two-Tier System," IZA Discussion Papers 8702, Institute of Labor Economics (IZA).
    18. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries [Appropriate growth policy: a unifying framework]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(58), pages 349-402.
    19. 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.
    20. Etienne Lale, 2019. "Labor-market Frictions, Incomplete Insurance and Severance Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 411-435, January.

    More about this item

    Keywords

    labor market regulation; employment protection; temporary work; skill demand; worker flows;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • 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
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp16262. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.