Temporary Employment Reform: The Impact On Jobs and Productivity

Labour market reforms aimed at changing the extent to which firms use different kinds of temporary contracts – such as apprenticeships, fixed-term, external collaborators and temporary agency jobs – can have very different outcomes for jobs and productivity. That is the conclusion of research by Professors Lorenzo Cappellari, Carlo Dell”Aringa and Marco Leonardi, published in the August 2012 issue of the Economic Journal.

Analysing Italian firm-level data on employment and productivity, the researchers show that two similar reforms intended to spread the use of apprenticeship and fixed-term contracts had in practice very different effects:

  • A reform of apprenticeship contracts increased job turnover and induced the substitution of external staff with firms” apprentices: the overall impact was to boost productivity.
  • But a reform of fixed-term contracts did not produce the intended results: it induced a substitution of temporary employees in favour of external staff and reduced capital intensity, generating productivity losses.

The reason for the failure of the second reform is that the new regulation of fixed-term was too generic and too dependent on judges” interpretation of the norm in case of disputes. This increased employers” uncertainty about the applicability of these contracts, which were substituted by other types of temporary contracts.

The research shows that firms tend to substitute across types of temporary contract when policy-makers introduce labour market reforms with the aim of increasing or limiting the diffusion of one specific type of contract.

With reform of temporary contracts on the policy agenda in many countries, this study provides evidence that institutional details play an important role in the implementation of labour market reforms.

Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms” by Lorenzo Cappellari, Carlo Dell”Aringa and Marco Leonardi is published in the August 2012 issue of the Economic Journal.

Lorenzo Cappellari

professor of economics | Catholic University of Milan | +39 02 72 343 010 | lorenzo.cappellari@unicatt.it

Carlo Dell”Aringa

Catholic University of Milan

Marco Leonardi

University of Milan | +39 338 632 5350 | marco.leonardi@unimi.it