Italy's 'Employment-Rich' Recovery: A Closer Look

Abstract

We look at changes in employment in Italy after the double-dip recession. We show that since the end of 2014 the responsiveness to GDP of total employment and its payroll components (permanent and fixed-term) has risen significantly; the increase has been broad-based across sectors and it would have been larger if demographic factors had been netted out. These developments are not common to France, Spain and Germany. Therefore, we turn to Italy-specific determinants related to the recent labour market reforms. Using cell-level data drawn from the Comunicazioni Obbligatorie of the Veneto region, we find that gross permanent hires and conversions of fixed-term positions have temporarily, but significantly, benefited from the 2015-2016 hiring subsidies across all types of firms and, more smoothly, from the new regulation of dismissals introduced by the 2015 Jobs Act for medium-large firms. This latter result is clear in 2017, in the absence of subsidies to permanent hiring. Fixed-term employment has increased, likely favoured by the 2014 Poletti Decree, more strongly so when permanent hiring subsidies were lifted or weakened and among smaller firms.