Employment protection and regional worker flows in Italy: an assessment of the theoretical predictions

In this paper we point out that the theoretical predictions concerning Employment Protection Legislation (EPL) are not fully confirmed by empirical evidence in Italy, a strict EPL country according to OECD. In particular, worker flows computed from both social security dataset and LFS are remarkably high (among the highest of continental Europe), no matter which measure of worker flows is considered (Gross worker Turnover and Gross worker reallocation). Moreover, we argue that geographical differences among regions are quite surprising. Even if EPL is the same across regions, worker flows are higher in the South, region usually supposed to be the least dynamic of the country, than in the North. The standard explanation of the higher flow rates in the South usually concerned the different economic structural composition of the regions (basically firm size and sectoral composition).Using the same weighting procedure as Blanchard & Portugal (2001), we have tested this hypothesis: even after controlling for structural composition, flow rates in the South remain higher. Black labour market, not-standard contracts, public sector incidence are investigated as possible alternative explanations of regional differences. Through a Logit estimation we find out that none of these factors can fully explain these differences. We have also derived, at the regional level, a prevalence of a positive relation between worker flows and unemployment duration, as opposed to what is predicted by the theory. To sum up, almost all the results we have derived do not confirm the expected impacts of a strict EPL on the Italian labour market structure. General considerations about it are derived.Worker Turnover and Reallocation, Employment Protection, Regional Economics