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Deregulating Job Protection: Evidence on Productivity and Income Distribution from Italy

Author

Listed:
  • Gabriele Ciminelli

    (Asian Development Bank)

  • Guido Franco

    (Centro Studi Confindustria)

Abstract

This paper investigates the impact of job protection deregulation on firms’ productivity, leveraging a size-based cutoff in the eligibility criteria of a pivotal 2014 labor market reform in Italy. The reform replaced reinstatement requirements with a progressive compensation system for unjust dismissals of new hires in firms with more than 15 employees, while leaving smaller firms unaffected. We find that total factor productivity increased by 1% in treated firms relative to control firms, on average, in each of the 5 years following the reform’s implementation. Labor productivity gains were slightly larger, also driven by capital deepening. Next, we extend the analysis to uncover how the productivity gains were distributed between employers and workers. Capital owners benefited more, as the reform led to a gradual decline in the labor share of value added, reaching 0.7 percentage points after 5 years.

Suggested Citation

  • Gabriele Ciminelli & Guido Franco, 2025. "Deregulating Job Protection: Evidence on Productivity and Income Distribution from Italy," ADB Economics Working Paper Series 809, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:021674
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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