Presentation of the paper

Who pays for it? The heterogeneous wage effects of Employment Protection Legislation

Speaker

Giovanni Pica

Università di Salerno

Abstract

This paper estimates the effect of employment protection legislation (EPL) on  workers' individual wages in a quasi-experimental setting, exploiting a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees and left firing costs unchanged for bigger firms. Accounting for the endogeneity of the treatment status, we find that the average wage reduction (between -0.4 and -0.1 percent) that follows the increase in EPL hides highly heterogeneous effects. Movers suffer a 2 percent wage drop, which happens mostly at entry, while incumbent workers are left unaffected. Results also indicate that the wage effect of the EPL reform is stronger for young blue collars and workers at the low end of the wage distribution.

Finally, workers in low-employment regions suffered higher wage reductions in small relative to large firms after the reform. This pattern is consistent with theories that predict that the ability of the employers to shift the cost of EPL onto wages depend on workers' and firms' relative bargaining power.

For more information: crenos@unica.it

Tel. +39 070 6756414    Fax +39 070 6756402