CANCELLED - Heterogeneous paths to stability
Abstract
We investigate how the flexibility of temporary contracts affects the probability of conversion into permanent employment. Theoretically, we explore the workers' career development in response to the change in flexibility; empirically, we exploit an Italian labour market reform which increased the flexibility of temporary contracts in a difference in differences framework.
We find that new entrants affected by the reform experienced a decrease in the conversion rate of approximately 12.5 percentage points in the first months after the reform, compared to unaffected peers. The effect lowers to 5 percentage points over a year but remains significant. We find heterogeneous effects across different types of firms and workers. Interestingly, the conversion penalty negatively affects the wage pattern up to two years from the time of the policy implementation.