Abstract:

We study how firm heterogeneity interacts with the choice between permanent and temporary employment and different regulatory interventions.

First, we document a remarkable degree of variability in the share of temporary employees in the workforce, both across firms and over time.

We then show that this variability is associated with the response of firms to a reform that changed the regulation of temporary employment in Italy: firms that only partially relied on temporary jobs reacted by substituting between contract types, switching from temporary positions to permanent ones; firms with a higher share of temporary employees, instead, ended up destroying jobs with much higher frequency.

We turn to a search and matching model of the labor market with endogenous contract choice to rationalize these facts. In the model, firms hire workers using either a permanent or a temporary contract, based on their productivity and the expected duration of the production opportunity related to each job. Through the lens of the model we: (i) explain the empirical facts in a consistent framework; (ii) consider counterfactual scenarios, assessing the effects of regulation under different economic conditions.

Abstract:

In recent years, several European countries have modified their policies on fixed-term contracts, oscillating between liberalization and restriction in order to balance employment flexibility and job stability. We analyze a 2018 reform that tightened the legislation on temporary contracts in Italy, and examine its impact on wage dynamics. Our analysis, grounded in extensive administrative data covering the universe of dependent employees in Italy, reveals a sizeable decline in the starting wage of workers whose contract gets converted from fixed-term to permanent. We suggest two possible explanations for this decline. First, the new policy regime could induce changes in the composition of the pool of converters. Second, the decline in wages could be caused by a decrease in the surplus generated by each job, either through a direct increase in labor costs or through an increase in uncertainty about the quality of the worker. Our results suggest the existence of some degree of market power on the part of firms, with increased security for the workers being partly compensated by lower wages.

Abstract:

We study the formation of hierarchies in firms that are active in multiple locations.

Abstract:

Firms create temporary jobs for different reasons: to screen candidates for permanent positions; to cope with seasonal and short-term swings in activity; to increase flexibility in the use of the workforce. We use data on the universe of temporary jobs in Italy between 2013 and 2017 to identify and characterize the firms that engage in these different strategies. 

Screening is not a primary driver of temporary employment: the conversion rate of fixed-term employment relationships -- 20% on average -- is strongly predicted by unobserved firms factors and strongly positively correlated with the stated duration of the first contract, a choice that the firm makes before observing the surplus of the match.

Seasonality in activity involves a limited (below 15%) but well-identifiable share of jobs and firms. On the other hand, the use of fixed-term contracts as a buffer to meet flexibility needs is more difficult to characterize: while some firms resort to temporary employment because their revenues are highly volatile, others simply discharge part of their normal business risk onto workers. This may lead to excessive worker turnover.

These results have important policy implications for the design and regulation of fixed-term employment contracts.