Institutional Rigidities and Employment Rigidity in the Italian Large Industrial Firms.

Many indicators (OECD 1994) show tha the Italian labour market is characterised by a strong pro-workers and pro-unions legislation. This is usually interpreted as a high degree of rigidity. It is known that , in response to shocks, firms in rigid labour markets tend to trade workers adjustment off individual working hours adjustment (Abraham-Houseman (1994)). We analyse this rade-off for the Italian large industrial firms, using the Kalman filter to get the impulse-response functions of employment and working hours to permanent and temporary shocks.