Employment protection legislation, capital investment and access to credit: evidence from Italy

Federico Cingano, Marco Leonardi, Julian Messina and Giovanni Pica

No 4, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: This paper estimates the causal impact of dismissal costs on capital deepening and productivity exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for larger firms. We show that the increase in firing costs induces an increase in the capital-labour ratio and a decline in total factor productivity in small firms relative to larger firms after the reform. Our results indicate that capital deepening is more pronounced at the low-end of the capital distribution - where the reform hit arguably harder - and among firms endowed with a larger amount of liquid resources. We also find that stricter EPL raises the share of high-tenure workers, which suggests a complementarity between firm-specific human capital and physical capital in moderate EPL environments.

Keywords: Capital deepening; severance payments; regression discontinuity design; financial market imperfections; credit constraints (search for similar items in EconPapers)
JEL-codes: D24 G31 J65 (search for similar items in EconPapers)
Pages: 36
Date: 2014-06
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-eur and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.dt.tesoro.it/export/sites/sitodt/module ... s/WP_N._4_-_2014.pdf (application/pdf)

Related works:
Journal Article: Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy (2016)
Working Paper: Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy (2013)
Working Paper: Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:2014-4

Access Statistics for this paper

More papers in Working Papers from Department of the Treasury, Ministry of the Economy and of Finance Contact information at EDIRC.
Bibliographic data for series maintained by Michele Petrocelli ( this e-mail address is bad, please contact ).