Let's Roll Back! The Challenging Task of Regulating Temporary Contracts

In this paper, we evaluate the impact of a reform introduced in Italy in 2018 (Decreto Dignità), which increased the rigidity of employment protection legislation (EPL) of temporary contracts, rolling back previous policies, to reduce job instability. We use longitudinal labour force data from 2016 to 2019 and adopt a time-series technique within a Rubin Casual Model (RCM) framework to estimate the causal effect of the reform. We find that the reform was successful in reducing persistence into temporary employment and increasing the flow from temporary to permanent employment, in particular among women and young workers in the North of Italy, with significant effects on the stocks of permanent employment (+), temporary employment (-) and unemployment (-). However, this positive outcome came at the cost of higher persistence into inactivity, lower outflows from unemployment to temporary employment and higher outflows from unemployment to inactivity among males and low-educated workers.