What if? Using counterfactuals to evaluate the effects of structural labour market reforms: evidence from the Italian Jobs Act

Abstract

ABSTRACT The article assesses the impact of the Jobs Act, the labour market reform passed in Italy under Matteo Renzi’s cabinet in 2014–2015. In doing so, the study has a twofold aim. First, it contributes to the scholarly debate on labour market flexibilization, offering fresh empirical evidence about the debated effects of deregulatory reforms on employment performance. Second, our empirical investigation relies on an innovative approach, the synthetic control method, which allows us to estimate what would have happened if the Jobs Act had not been introduced. After the downturns of the Great Recession, the major goal of this flagship initiative was to boost overall employment performance while reducing labour market segmentation and enhancing more stable job opportunities for labour market outsiders, especially among younger cohorts and women. Comparing real-world observations for a number of key employment indicators with their estimated synthetic counterfactuals, we find that the Jobs Act did not fulfil its expectations. In line with part of the most recent literature addressing the impact of deregulatory reforms on employment performance, our results show that over the past five years no significant effects were driven by the reform, which may even have led to an increase in labour market segmentation.