OECD Social, Employment and Migration Working Papers

1815-199X (online)
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This series is designed to make available to a wider readership selected labour market, social policy and migration studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language - English or French - with a summary in the other.

The Perverse Effects of Job-security Provisions on Job Security in Italy

Results from a Regression Discontinuity Design You or your institution have access to this content

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Alexander Hijzen1, Leopoldo Mondauto2, Stefano Scarpetta
Author Affiliations
  • 1: OECD, France

  • 2: Italia Lavoro, Italy

04 July 2013
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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.
employment protection, labour market duality, temporary work contract, worker reallocation
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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