Working Paper: CEPR ID: DP5256
Authors: Adriana D. Kugler; Giovanni Pica
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 firms below 15 employees, while leaving dismissal costs unchanged for bigger firms, 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 big firms, especially in sectors with higher employment volatility. Moreover, we find that the reform reduced firms' employment adjustments on the internal margin as well as entry rates while increasing exit rates.
Keywords: employment volatility; European unemployment; firms entry and exit; unjust dismissal costs
JEL Codes: E24; J63; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in dismissal costs (J32) | Decrease in accessions in small firms (L26) |
| Increase in dismissal costs (J32) | Decrease in separations in small firms (J63) |
| Reform (P41) | Reduction in employment adjustments on the internal margin for small firms relative to large firms (J29) |
| Reform (P41) | Decrease in entry rates for small firms (L26) |
| Reform (P41) | Increase in exit rates for small firms (L25) |