Effects of employment protection on worker and job flows: Evidence from the 1990 Italian reform |
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Authors: | Adriana Kugler Giovanni Pica |
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Institution: | 1. Department of Economics, University of Maryland, College Park, MD 20742, United States;2. NBER, United States;3. IZA, Germany;4. OECD, 2 Rue Andre Pascal, 75016 Paris, France;5. EBRD, One Exchange Square, London EC2A 2JN, UK |
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Abstract: | This paper uses the Italian Social Security employer-employee panel to study the effects of the Italian reform of 1990 on worker and job flows. We exploit the fact that this reform increased unjust dismissal costs for businesses below 15 employees, while leaving dismissal costs unchanged for bigger businesses, to set up a natural experiment research design. We find that the increase in dismissal costs decreased accessions and separations for workers in small relative to large firms, especially in sectors with higher employment volatility, with a negligible impact on net employment. We also find some evidence suggesting that the reform reduced firms' entry rates and employment adjustments, but had no effect on exit rates. |
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