Hiring Incentives and/or Firing Cost Reduction? Evaluating the Impact of the 2015 Policies on the Italian Labour Market

46 Pages Posted: 30 Apr 2016

Date Written: March 18, 2016

Abstract

In 2015 Italy adopted two different policies aimed at reducing labour market dualism and fostering employment: a generous permanent hiring subsidy and new regulations lowering firing costs and making them less uncertain. Using microdata for Veneto and exploiting some differences in the design of the policies, we evaluate the impact of each measure. Both contributed to double the monthly rate of conversion of fixed-term jobs into permanent positions. Moreover, around 40 per cent of new total gross hires with permanent job contracts occurred because of the incentives, whereas 5 per cent can be attributed to the new firing regulations. The new firing rules also made firms less reluctant to offer permanent job positions to yet untested workers. The possibility of benefitting from the incentives in case of a conversion also boosted temporary hiring, as it allowed firms to test for the quality of a job match.

Keywords: job creation, firing costs, hiring incentives, labour market reforms

JEL Classification: J6, J21

Suggested Citation

Sestito, Paolo and Viviano, Eliana, Hiring Incentives and/or Firing Cost Reduction? Evaluating the Impact of the 2015 Policies on the Italian Labour Market (March 18, 2016). Bank of Italy Occasional Paper No. 325. Available at SSRN: https://ssrn.com/abstract=2772536 or http://dx.doi.org/10.2139/ssrn.2772536

Paolo Sestito (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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