This study estimates the effect of a labor market reform (Law 368/2001), which aimed at increasing the possibility of adopting temporary contracts, on the creation and destruction of jobs, and on profits and earnings. The empirical strategy uses the staggered implementation of the reform across different collective bargaining agreements, based on data from the Bank of Italy's Survey of Industrial and Service Firms, INPS, Cerved and CNEL.
The analysis shows that the effect of the reform on employment was infinitesimal: the positive impact on the share of temporary contracts and on the creation of new temporary jobs was offset by a higher short-term contract separation rate. The effect on firms' profit margins was positive, partly because of the negative impact on employees' earnings, especially for the young entrants into the labor market. Finally, the reform increased wage inequality between workers within firms.