Institutions and firms' adjustments: measuring the impact of courts' delays on job flows and productivity
Author(s)
Vallanti, G.
Date Issued
2017
Type
article
Volume
60
Issue
60
Start Page
135
End Page
172
ISSN
222186
Journal
Abstract
Not only is labor-market rigidity the result of legislative provisions, but it is determined
by the institutional framework at large. We argue that courts’ delays in
settling labor disputes affect the strictness of employment-protection legislation
by increasing the expected firing costs. We exploit the variation in the length
of labor trials across Italian judicial districts and the fact that the Italian legislation
regarding firing prescribes different firing regimes for firms above the
15-employee threshold and provide evidence on the impact of courts’ delays on
job reallocation and firms’ productivity. We show that in judicial districts with
longer trials, the rate of job turnover is significantly lower. This occurs through
lower rates of job destruction and, to a lesser extent, job creation. We also find a
detrimental impact of courts’ delays on the labor productivity of firms above the
15-employee threshold. The effect is stronger in sectors with higher flexibility
requirements.
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Conference(s)
THE JOURNAL OF LAW & ECONOMICS