How Reducing Employment Protection Affects Job Creation and Job Destruction Summary

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A reduction in employment protection is expected to encourage both job creation and job destruction

Image courtesy of interviewee. July 11, 2024

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The video discusses a study that examines how changes in employment protection legislation affect job creation and destruction in Italy. Prior to 2012, smaller firms (15 or fewer workers) had less stringent employment protections compared to larger firms. After 2012, all firms gained the ability to fire workers for economic reasons, impacting firm behavior. The study found that larger firms increased job destruction, while those exactly at the 15-worker cutoff did not alter job creation, contrary to the policy's intent to promote hiring. The findings indicated that policy uncertainty, particularly regarding potential future changes to employment protection, leads firms to be cautious in their hiring and firing decisions. This video suggests that policy uncertainty should be considered in future labor market research.

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This video discusses a study examining the effects

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of employment protection legislation on job creation

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and job destruction.

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The study uses the the entire population of Italian firms

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and aims to understand the effect

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of a reduction in employment protection

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on these two margins.

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Prior to 2012, Italian firms with 15

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or fewer workers had lighter employment protection,

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while larger firms had stricter protection.

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After 2012, all firms could use economic reasons

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to fire workers, making it easier for larger firms

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to fire employees and changing firm behavior.

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The author finds that firms above the cutoff,

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15 workers increased job destruction,

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but firms at the cutoff exactly 15 workers,

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did not change job creation,

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which is surprising given the policy's

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motivation to encourage hiring.

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This video reveals that firms do not hire new workers due

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to policy uncertainty,

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despite theoretical models predicting they would.

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The uncertainty regarding the possible reintroduction

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of a policy in the future leads firms

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to be cautious in hiring and firing decisions.

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This highlights the importance

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of considering policy uncertainty in future research on

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labor market policies.

00:00 - This video discusses a study examining the effects of employment protection legislation on job creation and job destruction. The study uses the the entire population of Italian firms and aims to understand the effect of a reduction in employment protection

00:14 - on these two margins. Prior to 2012, Italian firms with 15 or fewer workers had lighter employment protection, while larger firms had stricter protection. After 2012, all firms could use economic reasons to fire workers, making it easier for larger firms to fire employees and changing firm behavior. The author finds that firms above the cutoff, 15 workers increased job destruction, but firms at the cutoff exactly 15 workers,

00:46 - did not change job creation, which is surprising given the policy's motivation to encourage hiring. This video reveals that firms do not hire new workers due to policy uncertainty, despite theoretical models predicting they would. The uncertainty regarding the possible reintroduction of a policy in the future leads firms to be cautious in hiring and firing decisions. This highlights the importance

01:11 - of considering policy uncertainty in future research on labor market policies.

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