Heterogeneous Paths to Stability

35 Pages Posted: 19 May 2022

See all articles by Edoardo Di Porto

Edoardo Di Porto

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Cristina Tealdi

Heriot-Watt University; IZA Institute of Labor Economics

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: institutional reforms, flexibility, young workers, temporary contracts, employment protection legislation

JEL Classification: J41, J63, J64

Suggested Citation

Di Porto, Edoardo and Tealdi, Cristina, Heterogeneous Paths to Stability. IZA Discussion Paper No. 15246, Available at SSRN: https://ssrn.com/abstract=4114822 or http://dx.doi.org/10.2139/ssrn.4114822

Edoardo Di Porto (Contact Author)

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Cristina Tealdi

Heriot-Watt University ( email )

Riccarton
Edinburgh EH14 4AS, Scotland EH14 1AS
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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