Institutional Rigidities and Employment on the Italian Labour Market: the Dynamic of the Employment in the Large Industrial Firms
Many indicators (OECD 1994) show that the Italian labour market is characterised by a strong pro-workers and pro-unions legislation. This is usually interpreted as a high degree of rigidity. According to the theory of appropriability in presence of putty-clay investments (Caballero and Hammour (1998a,b)), such “institutional push” should generate low profits in the short run, and substitution away from labour in the long run. We analyse the labour input behaviour in Italian large firms, together with the institutional evolution in the labour market. We show that the theory of appropriability provides a parsimonious account of both employment dynamics and innovations in legislation.
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