Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms


  •  Corresponding author: Lorenzo Cappellari, Catholic University of Milan and IZA, Largo Gemelli 1, I-20123, Milan, Italy. E-mail: lorenzo.cappellari@unicatt.it.

  • We thank Tito Boeri, Juan Dolado, Michael Kvasnicka and three anonymous referees for providing extended comments on the paper and seminar participants at Catholic University of Milan, AIEL, EALE-SOLE, ESPE, the FEDEA/FRDB/IZA Conference on ‘Dual Labor Markets and the Single Contract’ and the IAB Workshop on ‘Labour Market Flexiblility-Boone or Bane?’ for useful remarks. We are also grateful to Domenico Mauriello of Unioncamere for his help with the Excelsior-Asia data. The usual disclaimers apply.


We investigate the effects of two reforms of temporary employment using panel data on Italian firms. We exploit variation in their implementation across regions and sectors for identification. Our results show that the reform of apprenticeship contracts increased job turnover and induced the substitution of external staff with firms’ apprentices, with an overall productivity-enhancing effect. The reform of fixed-term contracts instead did not produce the intended results: it induced a substitution of temporary employees in favour of external staff and reduced capital intensity, generating productivity losses. We estimate substitution elasticities across various types of temporary contracts that are consistent with this interpretation.