Essays on the effects of flexibility on labour market outcome

The thesis is structured in three articles which develop an analysis focused on the effects of labour market regulation on the labour market outcome and country economic performance. The first paper makes a review of literature by supporting the "OECD-IMF orthodoxy" according to which the rigidities imposed by labour market institutions are crucial determinants to explain European unemployment. Many works have been published which support this view. While these studies have become increasingly complex, the empirical results do not appear to be robust since they are highly sensitive to the nature of variables, the time period, and the econometric methods applied. Various reasons explain the adherence to this orthodoxy: the existence of priors, poor data on labour market institutions, as well as unsuitable econometric techniques. Considering that additional cross-country analysis will not be decisive to improve our understanding of labour market institutions, this paper suggests new investigations which rely on time-seriescross-section (TSCS) techniques, micro-analysis of firms and workers, as well as human subject and artificial experiments. The second paper delves into the relationship existing between labour market flexibility - epitomized by the proportion of temporary and part-time workers - and companies’ ability to innovate- as measured by the percentage of new products in total sales. Even though it is an important issue affecting a country economic growth, the analysis of the flexibility effects on companies’ innovativeness is almost neglected in current literature. On the one hand, ’more flexibility’ (i.e. a higher labour turnover) might foster firms’ innovation potential. Beside having (potential) wage savings effects, a larger inflow of new staff may enrich the pool of companies’ innovative ideas. On the other hand, greater work flexibility may have some drawbacks: steadily high rates of people entering and leaving firms may reduce social cohesion and trust, as well as increase the probability of opportunistic behaviour. Results suggest that a higher percentage of internal flexibility is associated with greater propensity to innovate, especially in high-tech firms. In line with the 1999/70/EC European directive, these results also suggest that fixed-term contracts (external flexibility) might be useful in periods of extraordinary corporate activity, but can have disadvantages for firms innovativeness and productivity if improperly used during normal activity. Finally, the third paper refers to one of the most attractive model for policymakers in Europe: the flexicurity model that combines elements of flexibility in labour markets with income and employment security for workers. Although common principles might drive labour market reforms, flexicurity should take up different forms from country to country. The aim of this work is investigate which is the suitable pathway for Italy and identify the advantages and risks of adopting lexicurity policies. In the first part, the paper examines flexicurity in Denmark, one of the leading country in this field, and then focuses on Italian labour market only. In particular, on the basis of an experimental analysis, the second part investigates the possibility for Italy to follow the first European flexicurity pathway which - in the case of countries with segmented labour markets - suggests to rely on contractual arrangements to distribute flexibility and security more evenly across the workforce. Unlike other experimental analysis, in this case the level of unemployment is determined endogenously and the level of efforts made is observable with a certain degree of uncertainty. This feature allows to study the interactions of labour market regulation and firms’ employment policy in determining the unemployment level. Results suggest that - especially in countries such as Italy, where there is limited scope for increasing spending - these contractual arrangements can improve the situation both for workers and companies