How Reducing Employment Protection Affects Job Creation and Job Destruction : Evidence from Italian Firms

A reduction in employment protection is expected to encourage both job creation and job destruction. To estimate these two effects independently, this article exploits a change in the Italian employment protection legislation, approved in 2012, which impacted firms differently depending on their size around the 15 employees cut-off. This article benefits from a firm-level administrative panel dataset for the period 2005-2014 and a difference-in-differences approach. The findings suggest that reducing employment protection may encourage job destruction but may not incentivize job creation and I provide suggestive evidence on how uncertainty about future employment policies may explain these results. Sub-sample analysis indicates that firms’ responses do not vary depending on their location, labor union coverage at the industry level, or age