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

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.

KEYWORDS:

• Labour policy
• unemployment
• segmentation
• youth employment
• women employment

Acknowledgements

We would like to thank the editor and the anonymous referees of the journal for their useful comments, that allowed us to finetune our arguments and make them clearer and more robust.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Concerning the contratto a tutele crescenti, the main revisions to date are the increase of the economic compensation in the case of unfair dismissals introduced by the so-called Decreto Dignità in 2018 (Decree Law 87/2018, converted into Law 96/2018), scaled up from a minimum of six to a maximum of thirtysix monthly wages, and the effects of two recent Constitutional rulings (n. 194/2018 and n. 150/2020), which declared unconstitutional the predetermined compensation linked to seniority only, hence partly restoring the role of Labour Courts.

2 See the Appendix for a detailed overview of the novelties occurred with the JA.

3 See, for instance, the OECD Economic Survey: Italy; IMF Country report: Italy; Banca d’Italia, Relazione annuale; Pinelli, Torre, and Pace (2017).

4 Incidentally, it should be noted that the authors, in a previous work, using a different identification strategy and definition of the control group, had higher expectations and identified more positive results for the graded security contract (Boeri and Garibaldi 2018).

5 Additionally, internal counterfactuals, such as small firms unaffected by the reduction of firing costs, could not be the ideal “most similar world” if the timings and dynamics of the recovery were correlated to the firm’s dimension.

6 For homogeneity, all the data used in the analysis are the annual series extracted from Eurostat. The exact measurements are provided in the online appendix.

7 We have used the synth command and synth_runner package in Stata15 to conduct our analyses and placebo estimates, as detailed in Cavallo et al. (2013) and in Galiani and Quistorff (2017). The reported statistics are referred to the most exigent studentized p-values, weighted for the corresponding pre-treatment match quality of the units.

8 If we extended the age period to also include the first years of working life after tertiary studies, e.g. after a master’s period, including people in the 15–39 age segment, the trajectories diverge even more, indirectly confirming what Ardito, Berton, and Pacelli (2019, 23) say about “University degree holders (and …) more skilled individuals not (being) favoured or even penalised by the reforms under scrutiny”. However, the placebo estimates do not further confirm the statistical significance of those gaps, probably because of the exceedingly long and undifferentiated composition of the segment definition, which depended on the original aggregation of the source of our data.

Additional information

Notes on contributors

Marco Giuliani

Marco Giuliani, Ph.D., is Full Professor of Political Science at the Department of Social and Political Sciences, University of Milan (Italy), where he teaches Comparative Politics. His recent research focuses mostly on political and policy dynamics in the wake of the Great Recession. Amongst his publication Twelve votes for an Exit: Compromise and Responsiveness in the Brexit Process (in Government and Opposition, 2021), Economy or austerity? Drivers of retrospective voting before and during the Great Recession (in International Political Science Review, 2020), Economic vote and globalization before and during the Great Recession (in Journal of Elections, Public Opinion and Parties, 2019)

Ilaria Madama

Ilaria Madama, Ph.D., is Associate Professor of Political Science at the Department of Social and Political Sciences, University of Milan (Italy). Her main research areas are EU social governance and comparative social policy. Among her recent publications: Researching Social Europe on the Move (with C. De La Porte, 2022, forthcoming in M. Yerkes, K. Nelson and R. Nieuwenhuis (eds.)); Fighting poverty and Social Exclusion in the EU (Routledge, 2018, co-edited with M. Jessoula); Innovating long-term care policy in Italy from the bottom (in Journal of Regional Research, 2019, with F. Maino, and F. Razetti); The right(s) and minimum income in hard times: Southern and Eastern Europe compared (in European Societies, 2019, with M. Natili, M. Jessoula and M. Matsaganis).