Institutional Rigidities and Employment Rigidity on the Italian Labour Market

A well-established result in the literature about labour market flexibility is that in flexible and dereg-ulated labour markets employment is more volatile. Over the last 35 years, Italy gives a good example of a transition from an over-regulated labour market into a quite more flexible one. According to the theory, labour market regulation and deregulation should translate into changes in employment volatil-ity. Anecdotal evidence reported in the press shows indeed growing concerns for increased uncertainty and short-tenured jobs. To check whether institutional reforms have really changed the labour market volatility, we test for the existence of breaks in the variance of different employment indicators. We find that while employment has indeed become less volatile, standard units of labour have become more volatile at the same time. We argue that this is due to increased job-to-job mobility, rather than to mobility from employment to unemployment. This seems to confirm the concerns for increased job insecurity