Who pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation

Marco Leonardi and Giovanni Pica

No 436, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper estimates the effect of employment protection legislation (EPL) on workers' individual wages in a quasi-experimental setting, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees and left firing costs unchanged for bigger firms. Accounting for the endogeneity of the treatment status, we find that the slight average wage reduction (between -0:4 and -0:1 percent) that follows the increase in EPL hides highly heterogeneous effects. Workers who change firm during the reform period suffer a drop in the entry wage, while incumbent workers are left unaffected. Results also indicate that the negative wage effect of the EPL reform is stronger on young blue collars and on workers at the low-end of the wage distribution. Finally, workers in low-employment regions suffer higher wage reductions after the reform. This pattern suggests that the ability of the employers to shift EPL costs onto wages depends on workers' and firms' relative bargaining power.

Date: 2012
New Economics Papers: this item is included in nep-hrm, nep-lab and nep-lma
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation (2013)
Working Paper: Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation (2012)
Working Paper: Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation (2010)
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