Working Paper: CEPR ID: DP2804
Authors: Andrea Ichino; Michele Polo; Enrico Rettore
Abstract: When a firing litigation is taken to court, only the characteristics of the employees? misconduct should be relevant for the judge?s decision. Using data from an Italian bank this Paper shows that, instead, local labour market conditions influence the court?s decision: the same misconduct episode may be considered sufficient for firing in a tight labour market but insufficient otherwise. This finding is obtained after taking carefully into consideration the non-random selection of firing litigation for trial. The existence of a judge?s bias is relevant for at least two research fields. For macroeconomists it suggests that higher unemployment rates may increase firing costs via the effect on courts? decision criteria; thus, the real extent of firing rigidities cannot be assessed without considering the role of courts. For labour law scholars, this finding is important because, following traditional principles, the law should be applied in the same way for all citizens and over the entire national territory.
Keywords: conflict resolution; firing costs; internal labour relations
JEL Codes: J41; J49; J52; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher unemployment rates (J64) | More favorable outcomes for employees in court (J79) |
| Higher unemployment rates (J64) | Judges are biased in firing litigations (K41) |
| Judges' biases (K40) | More severe cases of misconduct go to trial (K40) |
| More severe cases of misconduct go to trial (K40) | More favorable outcomes for employees in court (J79) |
| Higher unemployment rates (J64) | Higher firing costs through judicial biases (K41) |