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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
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    Full references (including those not matched with items on IDEAS)

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    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

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