Structural reforms in the labor market: an empirical evaluation

The Jobs Act (L. 10 December 2014, n. 183) represents the last Italian labor market reform, aimed at creating new stable employment through the adoption of the new form of open-ended contracts (“contratto a tutele crescenti”) as the privileged form of recruitment. This goal is based on the idea that the structural rigidities of the labor market, such as the employment protection systems, the high firing costs and the strong trade union powers, are the main source of the mismatching between labor demand and supply and the persistent unemployment registered since the 90’s. For this reason, over the past 20 years, the implemented policy (Treu Law, Biagi Law and Fornero Reform) has been addressed to remove this kind of rigidities, following the guidelines outlined by the flexicurity regimes used in northern Europe. However, they have not achieved the goal for which they were designed, but they have rather produce a dualist labor market with an increasing share of precarious workers, without reducing the unemployment rate. Indeed, as shown by Blanchard et al., the success of the flexicurity model in the Nordic countries reflects underlying factors, like the degree of trust between firms and workers, that may not be easily replicable in other countries as Italy. The Jobs Act tries to stimulate the long-term employment by simplifying the procedure to establish a working relationship and redefine the dismissals regime through the reduction of the cases of reinstatement and the decrease of the firing costs for the firms. At the same time, the Italian government introduced with the Budget Law (Legge di Stabilità, L. 23 December 2014, n. 190) temporary incentives lasting three years targeting those firms hiring workers according to the new labor-market regime. Employing the data collected by Italian National Institute of Statistics in February 2015 and 2016, I estimate through the pscore matching method the average effect of the treatment on the treated, i.e. the average effect of the reform -the treatment- on those firms who have applied it -the treated-, by comparing with the untreated. Estimation results show that an increase in the probability of being hired with a fixed-term contract after the introduction of the Jobs Act reform. Particularly, the 31,1 % of firms who took advantage of the reform have hired a worker with a fixed-term contract. The reasons behind these results could be several. First of all, the reform has also introduced some measures (such as vouchers as a method of payment and the abrogation of some substantial requirements to use fixed-term contracts) which contribute having fewer constraints and fewer costs for the adoption of those contracts. Secondly, we have found a significant impact of the incentives from Budget Law on the new hires. Namely the result of the cross-firm evidence is that the incentives are associated with an increase, on average, of 43,4 percentage points in the probability of hiring. Indeed these monetary incentives are exploitable not only by the firms which hire workers with an open-ended contract, but also by the firms which hire with a fixed-term contract that has to be transformed in an open-ended one in the future, considering the possibility that after those three years the workers could be easily fired given the extremely cheap dismissal conditions. The evidence provided by this study casts some doubts about the effectiveness of the measures based on the flexibilization of the Italian labor market on the long-term employment, given that the precariousness emerged in the last 20 years after the first flexibility reforms seems not decreased at all after the Jobs Act. Nevertheless, given the limited information set provided by the dataset in use, one should take the results of the analysis as a sort of starting point for further research in different direction, both obtaining a more informative dataset and applying other treatment models