Making the Italian Labor Market More Flexible: An Evaluation of the Treu Reform

Abstract

The Treu Law introduced temporary contracts and extended the applicability of fixed-term contracts in order to increase the flexibility of the labour market and to reduce unemployment. The paper inquires whether the reform has affected the duration dependence related to the out-flow from non-employment, how previous atypical contract experiences affect the probability of finding a stable job and if the probability of flowing toward a permanent contract is higher moving from a non-working state rather than from an atypical job. Applying a Mixed Proportional Hazard (MPH) model with competing risk to a sub-sample drawn from the WHIP dataset, I estimate the hazard rate for the state transitions. My main findings predict an increase in negative duration dependence for non-working state out-flow, meaning an amplification of the short-term unemployed - long-term unemployed duality. It is a consequence of the larger use of atypical contracts, that would provide a screening instrument for the hiring choices of firms. Previous atypical job experiences play a negative effect on the probability of moving toward a stable job if the origin state is a non-working condition, while they have a positive role in the transition toward an atypical job. Besides, there is no evidences that the probability of finding a permanent contract is higher for workers who move from an atypical contract rather from a non-working state. Finally, a human capital accumulation effect is found to explain the transition toward a stable job. Policy recommendations include promotion of longer contracts, implementation of training programs and services to facilitate job-search.