Effects of the labour market flexibility in the long run: evidence from the Italian case (1977 – 2009)

The Italian labor market experienced two major deregulations in the last fteen years. The rst one was implemented in 19971 and created temporary work agencies in the Italian law system. The aim of the intervention was the reduction of Italian unemployment by means of a more exible labor market. The second reform dates at 2003, and is the so-called Biagi Law. The intervention introduced several dierent kinds of labor contracts and regulated part time work after years of informal usage. In this paper we investigate whether the above reforms are correlated with employment. Moreover, we assess the role of rigid labour market institutions in determining this outcome. Deregulations are generally considered more effective in countries in which institutions are relatively more viscous2. Italian labour market has always been rigid, and the abundant literature on Italian hysteresis (see, among others, Carmeci and Chies, 2006) commonly attributes unemployment persistence to labor market institutions 3. In addition to the main research question, this paper assesses whether exible contracts are correlated with trade union power, and provides an explanation the trade union inuence downfall observed along the later years. The paper is structured as in the following. Section two provides a literature review and states our research question. Section three describes our dataset. Section four provides preliminary results derived from a study of the stylized facts in the Italian labour market. Section ve displays and discusses the empirical results obtained. Section seven concludes.