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. I benefit 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 a future potential new increase in employment protection may explain these asymmetric results