No. 983 - Crossing the threshold: employment regulation, firm behaviour and labour market flexibility in Italy
In Italy, firms with more than 15 employees are subject to stricter dismissal regulations. The reforms introduced by the 2012 Fornero Law and the 2015 Jobs Act reduced dismissal rigidity and increased hiring flexibility. Using INPS data covering all firms with at least one employee, an econometric model is estimated to assess the impact of this threshold on firm size growth and how this effect has evolved over time.
The probability of employment growth is only moderately affected by the threshold, decreasing by 2.6 percentage points for firms with 15 employees (from 34 to 32 per cent). A similar, though weaker, effect is observed for firms with 14 employees. This effect can be observed both before and after the Jobs Act, although it appears slightly weakened post-reform. Firms above the threshold make greater use of fixed-term contracts, but these reforms have helped narrow the gap in the use of temporary employment vis-à-vis smaller firms.
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