Evaluating the effects of labour market reforms on job flows: The Italian case

In this paper, we assess the effects of the labour market reforms to enhance flexibility, implemented at the beginning of the new millennium in Italy. We contribute to the debate on whether temporary contracts have positive or negative effects on employment and workers' perspectives of transition to a permanent job. We use an unexploited panel dataset of work histories for 2003-2010 and propose an estimation method based on Markov chains to measure the effects of the reforms on individual employment. Contrary to the goals of the reforms, our estimates show a small positive effect on job creation and a substitution of permanent contracts with temporary contracts, a risk amplified for young people and workers in the depressed areas of Southern Italy.