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The Perverse Effects of Job-security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design

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  • Alexander Hijzen

    (OECD)

  • Leopoldo Mondauto

    (Italia Lavoro)

  • Stefano Scarpetta

    (OECD)

Abstract
This paper analyses the impact of employment protection (EP) on the composition of the workforce and worker turnover using a unique firm-level dataset for Italy. The impact of employment protection is analysed by means of a regression discontinuity design (RDD) that exploits the variation in EP provisions across firms below and above a size threshold. Using our RDD approach, we show that EP increases worker reallocation, suggesting that EP tends to reduce rather to increase worker security on average. We further show that this can be entirely explained by the fact that firms facing more stringent EP make a greater use of workers on temporary contracts. Our preferred estimates suggest that the discontinuity in EP increases the incidence of temporary work by 2-2.5 percentage points around the threshold. Moreover, further analysis suggests that the effect of employment protection persists among larger firms well beyond the threshold and may account for about 20% of the overall incidence of temporary work. There is also evidence that EP reduces labour productivity and this effect is to an important extent due to the impact of EP on worker reallocation and the incidence of temporary work. Cet article analyse l'impact de la protection de l'emploi (PE) sur la composition de la main-d’oeuvre et la rotation des travailleurs en utilisant un ensemble unique de données au niveau des entreprises pour l'Italie. L'impact de la protection de l'emploi est analysé au moyen d’une méthode de régression par discontinuité (RD) qui exploite la variation des dispositions de la PE entre les entreprises de taille inférieure ou supérieure à un certain seuil. À l’aide de notre approche RD, nous montrons que la PE accroît la réallocation des travailleurs, indiquant que la PE a tendance, en moyenne, à réduire plutôt qu’à accroître la sécurité de l’emploi des travailleurs. Nous montrons de plus que cela peut être entièrement expliqué par le fait que les entreprises confrontées à une PE plus stricte recourent plus largement à des travailleurs sous contrats temporaires. Nos estimations privilégiées suggèrent que la discontinuité de la PE augmente l'incidence du travail temporaire de 2 à 2,5 points de pourcentage autour de la valeur seuil. En outre, une analyse plus détaillée suggère que l'effet de la protection de l'emploi persiste parmi les grandes entreprises bien au-delà du seuil et peut représenter environ 20% de l'incidence globale du travail temporaire. Il semble également que la PE réduit la productivité du travail et que cet effet est dans une large mesure dû à l'impact de la PE sur la réallocation des travailleurs et l'incidence du travail temporaire.

Suggested Citation

  • Alexander Hijzen & Leopoldo Mondauto & Stefano Scarpetta, 2013. "The Perverse Effects of Job-security Provisions on Job Security in Italy: Results from a Regression Discontinuity Design," OECD Social, Employment and Migration Working Papers 151, OECD Publishing.
    • Handle: RePEc:oec:elsaab:151-en
    DOI: 10.1787/5k40hthb969w-en
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    Cited by:

    1. Giuseppina Gianfreda & Giovanna Vallanti, 2017. "Informality and productivity: do firms escape EPL through shadow employment? Evidence from a regression discontinuity design," Working Papers 2017-01, Universita' di Cassino, Dipartimento di Economia e Giurisprudenza.
    2. Stefano Scarpetta, 2014. "Employment protection," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-12, May.
    3. Boeri, Tito & Garibaldi, Pietro, 2019. "A tale of comprehensive labor market reforms: Evidence from the Italian jobs act," Labour Economics, Elsevier, vol. 59(C), pages 33-48.
    4. Álvaro A. Novo & Mário Centeno, 2013. "Segmenting wages," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
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    6. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 533-572, May.
    7. Peter Gal & Alexander Hijzen & Zoltan Wolf, 2012. "The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence," OECD Social, Employment and Migration Working Papers 134, OECD Publishing.
    8. Giuseppina Gianfreda & Giovanna Vallanti, 2017. "Informality and productivity: do firms escape EPL through shadow employment? Evidence from a regression discontinuity design," Working Papers 2017-01, Universita' di Cassino, Dipartimento di Economia e Giurisprudenza.
    9. Jaramillo, Miguel, 2019. "The unprotecting effects of employment protection: the impact of the 2001 labor reform in Peru," GLO Discussion Paper Series 299, Global Labor Organization (GLO).
    10. Bacci, Silvia & Bartolucci, Francesco & Pigini, Claudia & Signorelli, Marcello, 2014. "A finite mixture latent trajectory model for hirings and separations in the labor market," MPRA Paper 59730, University Library of Munich, Germany.
    11. Bolli, Thomas & Kemper, Johanna, 2015. "Evaluating the Impact of Employment Protection on Firm-Provided Training in an RDD Framework," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112895, Verein für Socialpolitik / German Economic Association.
    12. Jaramillo, Miguel, 2018. "Los efectos desprotectores de la protección del empleo: El impacto de la reforma del contrato laboral de 2001," Revista Moneda, Banco Central de Reserva del Perú, issue 173, pages 31-36.
    13. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    14. Elena Bastianelli & Raffaele Guetto & Daniele Vignoli, 2022. "The impact of labour market deregulation reforms on fertility in Europe," Econometrics Working Papers Archive 2022_04, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    15. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    16. Damas de Matos, Ana & Parent, Daniel, 2016. "Which firms create fixed-term employment? Evidence from Portugal," Labour Economics, Elsevier, vol. 41(C), pages 348-362.
    17. Hijzen, Alexander & Mondauto, Leopoldo & Scarpetta, Stefano, 2017. "The impact of employment protection on temporary employment: Evidence from a regression discontinuity design," Labour Economics, Elsevier, vol. 46(C), pages 64-76.
    18. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    19. Bofinger, Peter & Buch, Claudia M. & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14 [Against a backward-looking economic policy. Annual Report 2013/14]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314.
    20. Elena Bastianelli & Raffaele Guetto & Daniele Vignoli, 2023. "Employment Protection Legislation, Labour Market Dualism, and Fertility in Europe," European Journal of Population, Springer;European Association for Population Studies, vol. 39(1), pages 1-27, December.
    21. Verónica Alaimo & Mariano Bosch & David S. Kaplan & Carmen Pagés & Laura Ripani, 2015. "Jobs for Growth," IDB Publications (Books), Inter-American Development Bank, number 90977, February.

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    More about this item

    Keywords

    employment protection; labour market duality; temporary work contract; worker reallocation;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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