This paper contributes to the existing literature on wage subsidies, EPL reforms and their interaction focusing on regional disparities within the same country. The interest of the exercise relies in highlighting different reactions to the same reforms of the same institutional framework, depending on local economic and social conditions. After estimating the causal effect of the mentioned reforms in each administrative region, we focus separately on the estimated impacts of hiring incentives, decreased EPL and their interaction to single out which macro characteristic at the regional level is responsible for their variability. Through a principal component analysis, we highlight that the impact of incentives on generating permanent contract relationships is higher in regions where GDP and VA per head are higher and where the informal economy is limited; where a larger share of older workers and of take-up rate of the incentive is present, where manufacturing and innovative activity are more present. Finally, we do not find any heterogeneity – and in most cases any impact at all – for the EPL component of the reform under scrutiny. All in all, we can conclude that regions, where the economy is stronger, are also those benefitting more from generous wage subsidies. This pattern might exacerbate inequality across territories, a quite serious problem already present in Italy.
thematic categories: outreach report