EPL and Job Contract Conversion Rate: The Italian CFL Case
This paper analyzes the effect of EPL on the conversion rate of temporary contracts into permanent ones in the same firm. Once EPL is enforced, two effects might arise: employers could tend to replace their permanent workforce with short-term employment because of the lower expected value of a filled job, but firms might also prefer to stabilize part of their temporary workforce. In fact, firms already know about workers' skills and attitudes and workers have acquired information about wages, career prospects and employers' expectations. This in turn implies a lower risk of job-breakup. Which of these two effects is dominant is ultimately an empirical question. I exploit a natural experiment set up yielded by the Italian 1990 reform which introduced unjust dismissal costs for small businesses to identify the effect of EPL on the conversion rate of working and training contracts (Contratti di formazione e lavoro - CFL) into permanent ones in the same firm.
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