Labor market regulations and firm adjustments in skill demand

Anna Bottasso, Massimiliano Bratti, Gabriele Cardullo, Maurizio Conti and Giovanni Sulis ()

Journal of Public Economics, 2025, vol. 242, issue C

Abstract: We study how changes in labor market regulations may trigger firm adjustments in skill demand. Leveraging rich administrative data from Italy, we investigate the effects of a reform that, to increase job stability, reduced the firing costs for permanent employees and tightened the regulation of fixed-term contracts. Using a difference-in-differences (DID) design, we document that the reform had unintended effects, inducing firms to increase layoffs of low-skilled (LS) permanent employees and reduce hires of LS workers on fixed-term contracts. However, the reform had no effect on high-skilled workers or permanent hires. A theoretical search and matching model with heterogeneous skills and contract durations makes sense of our main findings.

Keywords: Labor market regulations; Employment protection; Fixed-term work; Skill demand; Worker flows (search for similar items in EconPapers)
JEL-codes: J21 J41 J63 J64 K31 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Labor Market Regulation and Firm Adjustments in Skill Demand (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:242:y:2025:i:c:s0047272724002287

DOI: 10.1016/j.jpubeco.2024.105292

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