Heterogeneous Paths to Stability

Edoardo Di Porto and Cristina Tealdi

No 15246, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate how the flexibility of temporary contracts affects the probability of young workers to be upgraded into permanent employment. Theoretically, we explore the workers' career development in response to the change in flexibility within a search and matching model; empirically, we exploit an Italian labour market reform which increased flexibility in a difference in differences framework. We find that new entrants in the labour market who have been affected by the reform experienced a decrease in the conversion rate of approximately 12.5 percentage points in the first months after the reform, and of 5.1 percentage points over a year, compared to unaffected peers. This effect is particularly strong among women and low-educated workers employed in low productive firms in the Center/South of Italy. Worryingly, the lower conversion rate leads to a 25% wage penalty even two years down the workers' career paths.

Keywords: temporary contracts; young workers; flexibility; institutional reforms; employment protection legislation (search for similar items in EconPapers)
JEL-codes: J41 J63 J64 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022-04
New Economics Papers: this item is included in nep-dge, nep-eur and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Journal of the Royal Statistical Society Series A: Statistics in Society, 2024, 187 (4), 1037–1064

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Working Paper: Heterogeneous Paths to Stability (2022)
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