Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation

Bibliographic Data

ID9703634
AuthorsMarco Leonardi (0000-0002-7989-1162, University of Milan and IZA), Giovanni Pica (University of Salerno, CSEF and Centro Studi Luca d’Agliano)
Year2013
Volume123
Issue573
Pages1236-1278
Publication date2013-12-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12022
OpenAlexW2236889734
LanguageEN
Citations received22
References cited37

This study estimates the effect of employment protection legislation on wages, exploiting the 1990 Italian reform that introduced unjust dismissal costs for firms below 15 employees. We find that the slight average wage reduction induced by the reform hides highly heterogeneous effects. Workers who change firm during the reform period suffer a drop in the entry wage, while incumbent workers are left unaffected. Also, the negative effect of the reform is stronger for young blue collars, low‐wage workers and workers in low‐employment regions. This pattern suggests that the ability of employers to shift firing costs onto wages depends on workers' relative bargaining power

Bargaining power · Dismissal · Economic growth · Economics · Efficiency wage · Employment protection legislation · Labour economics · Legislation · Minimum wage · Unemployment · Wage · Firm Innovation and Growth · Italy: Economic History and Contemporary Issues · Labor market dynamics and wage inequality