Employment Protection, Workforce Mix and Firm Performance

Abstract

We measure the impact of employment protection reduction in an uncertain framework on firms' hires and performance, exploiting the Italian 2015 Jobs Act. Results indicate that firms (1) stabilize workforce mainly through contract transformations of low-tenure and low-human-capital incumbent workers performing high-physical and low-intellectual tasks; (2) apply a cost-saving strategy that increases profits and decreases value added per-head. Effects are stronger among non-exporting and non-innovative firms. Our evidence casts doubts on the effectiveness of employment protection reductions in enhancing productivity in the long run.