Firing Costs and Job Loss: The Case of the Italian Jobs Act

Abstract

A recent reform in the Italian labour market has modified the permanent contract by reducing firing costs. Using a discontinuity in the application of the reform, we evaluate its effect on the probability of being still employed about three and a half years later. In contrast with theoretical predictions, we find that the job survival probability is not smaller for the treated and even significantly larger in some cases. We investigate the composition of permanent workers hired after the reform and we find evidence of treated firms changing their recruitment strategy in favour of potentially more productive workers.