Subsidies for Permanent Employment in the Time of Covid-19

Abstract

This paper analyses the impact of a regional policy aimed at fostering permanent employment after the COVID-19 recession. Using administrative micro data from the Italian private sector, we estimate the impact of subsidies on permanent employment by examining variations in their implementation across regions and over time. We find that, on average, the effect on the hiring of previously unemployed people is limited, but the impact on the conversion of fixed-term contracts to permanent ones is positive and sizeable. However, we observe that the average effect masks great heterogeneity across age groups, with young people - for whom subsidies were more generous - benefiting the most. Furthermore, we find no evidence that this regional policy encouraged employee poaching.

Keywords: Covid-19, Employment subsidies, Hiring, Place-based policy, Policy evaluation

JEL Classification: J21, J41, J48