Bratti, Massimiliano Conti, Maurizio Sulis, Giovanni
Year of Publication:
JRC Working Papers in Economics and Finance No. 2018/2
In this study we leverage on Italyâ€™s size-contingent firing restrictions in order to identify the causal effect of employment protection legislation (EPL) on firm-provided training using a regression discontinuity design. Our analysis demonstrates that higher levels of EPL reduce firmsâ€™ incentives to invest in workersâ€™ training. The number of trained workers falls by about 1.5-1.9 units at the threshold: this is a non-negligible effect, corresponding to a 16-20 per cent reduction in the number of trained workers. The results are robust to several sensitivity checks and controls for potential confounding factors (e.g., worker councils). The EPL effect on training is not mediated by different levels of investment in physical capital or propensities to innovate, while it is mostly accounted for by larger workersâ€™ turnover and use of temporary contracts, which entail lower training, in firms with higher firing costs. Our study points to potential adverse effects of EPL on workersâ€™ training in dual labor markets, owing to larger firms seeking to avoid higher EPL costs by means of temporary contracts.
employment protection legislation firing costs training Italy