Lia Pacelli

Employment Protection Legislation and the Size of Firms

The existing literature ignores the fact that in most European countries the strictness of Employment Protection Legislation (EPL) varies across the firm size distribution. In Italy firms are obliged to rehire an unfairly dismissed worker only if they employ more than 15 employees. Theoretically, the paper solves a baseline model of EPL with threshold effects, and shows that firms close to the threshold are characterized by an increase in inaction and by a reluctance to grow. Empirically, the paper estimates transition probability matrices on firm level employment using a longitudinal data set based on Italian Social Security (INPS) records, and finds two results. First, firms close to the 15 employees threshold experience an increase in persistence of 1.5 percent with respect to a baseline statistical model. Second, firms with 15 employees are more likely to move backward than upward. Finally, the paper tests the effect of a 1990 reform which tightened the regulation on individual dismissal only for small firms. It finds that the persistence of small firms relative to large firms increased significantly. Overall, these threshold effects are significant and robust, but quantitatively small.

Are temporary jobs a port of entry into permanent employment

Purpose - This paper seeks to explore whether temporary jobs are a port of entry into permanent employment and to argue that the answer crucially depends on the type of temporary contracts being considered. Design/methodology/approach - The paper bases its empirical evidence on a longitudinal sample of labour market entrants in Italy and estimates dynamic multinomial logit models with fixed effects to allow for the non-random sorting of workers into the different types of contracts. Findings - The authors show that the transition to permanent employment is more likely for individuals who hold any type of temporary contract than for the unemployed, thus broadly confirming the existence of port-of-entry effects. Yet, not all temporary contracts are the same. An order among non-standard contracts with respect to the probability of taking an open-ended job emerges, with training contracts at the top, freelance work at the bottom, and fixed-term contracts outperforming apprenticeships. Strong SSC rebates, lack of training requirements, and low legal constraints concerning renewals result in poor port-of-entry performance, as in the case of freelance contracts. Instead, mandatory training and more binding legal constraints on the use, extension, and renewals of training contracts tend to enhance the probability of getting a standard job. Originality/value - Most of the existing empirical literature aggregates temporary contracts in a single category, thereby ignoring a relevant source of heterogeneity.

Do Larger Severance Payments Increase Individual Job Duration

This Paper analyses the effect of severance payments on the probability of separation at given tenure, wages and other individual and firm characteristics. It studies a mandatory deferred wage scheme of the Italian labour market (Trattamento di Fine Rapporto, TFR). Deferred wages increase job duration if two conditions hold: wages are rigidly set outside the employer-employee relationship, and past provisions are accumulated at interest rates that are below market rates. Under such circumstances, workers who withdraw from their accumulated stock of unpaid wages should experience, at given tenure, a subsequent increase in the probability of separation. This prediction appears empirically robust and quantitatively sizeable. A withdraw of 60% of the TFR stock (the median observed withdraw) increases the instantaneous hazard rate by almost 20%. In other words, an individual with at least ten years of tenure that experiences an early withdrawal increases his/her hazard rate from 10% to about 12%. A variety of robustness tests support these results.

Temporary hires and innovative investments

The flexicurity approach claims a positive effect of flexible labour on firm performance, also through an increased ability to innovate. Critics consider it a deregulation of the labour market, decreasing investment in human capital and innovation. We contribute to this broad debate providing an estimate of the relationships linking innovative investment, substitution investment, permanent hires and temporary hires. In particular, we aim at affirming or denying that innovative investments are accompanied by a specific kind of workforce, being it stable or flexible. In doing so, we contribute to bridge the gap among two quite separate strands of literature, as existing literature usually analyses capital and labour separately. Estimating a nonlinear recursive equation system we highlight a significant increase in the likelihood of hiring on a permanent base when the firm innovates; this holds till 2008. Afterward, during the crisis, innovating firms are more likely to hire using temporary contracts instead, a possible signal of a cost saving strategy adopted in a loose labour market by firms still able to innovate. Furthermore, both permanent and temporary hires never depend on increases in labour costs; however, substitution investment increases when labour cost increases, maybe in an attempt to increase labour productivity through a more efficient capital equipment.

Injured workers and their return to work: Beyond individual disability and economic incentives

Purpose - – The purpose of this paper is to study the factors affecting the return to work (RTW) of injured workers in an institutional setting where workers’ earnings are fully compensated during the disability period. Design/methodology/approach - – The authors use a unique data set matching employer-employee panel data with Italian workers’ compensation records. The authors estimate survival models accounting for workers’ unobserved heterogeneity. Findings - – Workers with higher wage growth, higher relative wages and from firms with better histories of stable employment, RTW sooner. More vulnerable workers – immigrants, females, members of smaller firms – also tend to return sooner. But even when we control for such measures of commitment, status, and job security, high-wage workers RTW sooner. Research limitations/implications - – The authors use proxies as measures of commitment and status. The authors study blue-collar workers without finer job qualifications. The authors estimate a reduced form model. Practical implications - – In an institutional environment where the immediate cost of workers’ compensation benefits falls largely on firms, employers seem to pressure those workers whose time off is more costly, i.e., high-wage workers. The lack of evidence of Social implications - – Workers who are induced to RTW before full recovery jeopardize their long- term health and employability. Firms that put such pressure on employees might generate social costs that can be particularity high in the case of high productivity workers. Originality/value - – The paper offers the first quantitative analysis of an institutional setting where injured workers face 100 percent benefits replacement rate and have job security. This allows focus on other workers’ or employers’ reasons to speed RTW. It is one of very few economics studies on this topic in the European context, providing implications for human resource managers, state regulators, and unions.

Human Capital Mix and Temporary Contracts: Implications for Productivity and Inequality

That human capital reduces inequality and increases productivity is a well-established result. Both links depend on the mix of human capital that individuals accumulate, i.e. on whether it is more specific or general. This paper fills a gap in the literature trying to measure whether workers accumulate disproportionally more general human capital than specific one. We exploit the temporary/permanent contract divide to measure the general/specific mix. In fact, theoretical considerations suggest that workers holding temporary contracts accumulate more general human capital than workers under permanent contracts. Using longitudinal matched employer-employee data, we find empirical support for this hypothesis, by showing that dismissed temporary workers are more likely to change economic sector than comparable workers losing their open-ended jobs. As labor market deregulation concerns raising shares of the workforce in all advanced economies, we should expect that future societies will increasingly rely on general skills rather than specific ones. This has implications for both inequality and productivity.