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The Effects of Partial Employment Protection Reforms: Evidence from Italy

Diego Daruich, Sabrina Di Addario and Raffaele Saggio ()

No 463, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: We combine matched employer-employee data with firms’ financial records tostudy a 2001 Italian reform that lifted constraints on the employment of temporary contract workers while maintaining rigid employment protection regulationsfor employees hired under permanent employment contracts. Exploiting the stag-gered implementation of the reform across different sectoral collective bargainingagreements, we find that this policy change led to an increase in the incidence oftemporary contracts but failed to raise employment significantly. The reform hadboth winners and losers. Firms appear to be the main winners as the reform wassuccessful in decreasing labor costs, leading to higher profits. By contrast, youngworkers are the main losers since their earnings were substantially depressed follow-ing the policy change. Rent-sharing estimates show that workers on a temporarycontract receive only 68% of the rents shared by firms with workers hired under apermanent contract, helping explain the post-reform labor cost reductions.

Date: 2020-04-27, Revised 2020-04-27
New Economics Papers: this item is included in nep-eur and nep-lab
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