Recommendations in the Italian Labour Market: An Empirical Analysis

Abstract

In this paper I focus on one of the most peculiar features of the Italian labour market: the importance played by recommendations in the hiring of new personnel. It is usually argued that, in contrast with the experience of other industrialized countries, in Italy letters of reference are not used to signal job applicants' qualities, but only to obtain a favoured treatment in the hiring process. Anecdotal evidence suggests that firms have used those practices both to overcome rigid hiring regulation and to weaken unions' power. In the empirical analysis, conducted on data drawn from the 1991 Bank of Italy Survey of Household Income and Wealth, I show that while workers seeking through recommendations increase the chance of being hired, they also pay a ''recommendation fee'' vis-a-vis workers hired through more traditional mechanisms. I provide various explanations for these results.Labour market imperfections, Earnings function