Institutions and labour market performance in Italy

My research focuses on the interactions between institutions and the functioning of the labour market. In this respect Italy represents an interesting "case study". It is commonly considered a highly regulated market however, there is evidence of flexibility higher than expected. Hence it must be investigated whether this postulated rigidity is real at the firm level and whether existing institutions and regulations are actually binding on human resource management at the firm level. My contribution relies on the attempt to measure the effect of a selected set of regulations on the behaviour of the firms. I focus on different pieces of legislation, all of them recently under scrutiny to be reformed, all of them relevant to shape the functioning of the Italian labour market. Employment Protection Legislation is made of several provisions: restrictions on firings, severance payments, notice periods are the most common. I focus on the first two: a provision akin to a severance payment and the regulation of individual layoffs. Temporary contracts are a way to avoid firing costs altogether, and are analysed next. Preliminary to all this is the analysis of the wage setting process, as the effects of EPL depend on how much wages are flexible. My approach is mainly empirical, and relies on the use of a very rich data archive. After assessing that Italian wages are quite rigid, and that only about 10% of the wage is not set outside the employer-individual employee relationship, I draw two general con clusions, (i) The estimated effect of the norms I analyse is always statistically significant, but it is always small (ii) the effect is increasing with firm size. This is coherent with a flexibility higher than expected in a deeply regulated market. Some hints pointing to a segmented market and to a non universal enforcement of the norms emerge as well