Italy: labour market de-regulation, unemployment risks and temporary employment growth. Lessons from the past for the present Covid-19 crisis

The manuscript focuses on the occupational consequences of the process of partial and targeted labour market deregulation undergone in Italy in the last decades. We adopt a mid-term longitudinal perspective to describe the influence of such process on both overall employment creation and on the diffusion of temporary employment. We rely on a self-constructed panel dataset based on 11 distinct cross-sectional waves of SHIW (Bank of Italy) data. A set of random effects linear probability models are specified, covering the period between 1995 and 2016, a period characterized by relevant labour market modifications as a joint product of institutional reforms (mainly in terms of welfare and labour market de-regulations) and different business cycles. By means of this extended observational window, we depict the contextual framework to investigate the rationale and the strategy followed in the last two decades of reforms concerning employment regulations, with a focus on the period preceding the spread of the Covid-19 crisis. In doing so we both provide a test for (long term) influence exerted by labour market de-regulation and temporary employment diffusion in a highly segmented labour market and, prospectively, we shed light on the possible counter or pro-cyclical role played by non-standard employment. From an empirical standpoint, the levels and modifications of labour market regulation under scrutiny are accounted for by means of a time varying labour market de-regulation measure (LMR), a specific subcomponent of the Fraser Institute Economic Freedom of the World (EFW) index. Based on World Bank and World Economic Forum data, the LMR measure provides comparative and longitudinal scores of strictness of regulations and procedures related to an extensive set of LM dimensions. To deal with the nexus between temporary employment diffusion, LM de-regulation, and labour market outcomes, in the following employment trends are evaluated both in response to variations in micro level (group-specific) exposure to temporary employment, and in macro (national) LMR. The overall pattern of the results, both in terms of employment rate and in the share of permanent workers, suggests that macro level de-regulation policies and micro level density of temporary employment can exert less positive (or even adverse) influence on macro and micro labour market outcomes, with a significant pro-cyclical interplay with the economic conjuncture.