Abstract

The economic pressure of globalisation and the cultural pressure of liberism led most industrialised countries over the last two decades to deregulate the labour market. This path generated segmented labour markets and decreased incentives to invest in workers' human capital, making cost reduction strategies more appealing. Italy is a paradigmatic example of this evolution and we examine two main questions. Is labour market deregulation necessary? The answer depends upon the actual hiring and firing costs that firms bear. Is labour market deregulation desirable? Here the answer depends upon the structure of incentives that deregulation provides to firms, in particular towards innovative investment and investment in human capital. We interviewed human resources managers and entrepreneurs, labour consultants, workers' and firms' unions, lawyers and a judge of the labour court. First, a scant empirical evidence on the size of labour adjustment costs emerges from a thorough analysis of the literature, hinting that deregulation of the labour market has been pursued based on a-priori beliefs and on - at best - anecdotic evidence. Second, our analysis highlights a clear correlation at the firm level on the one side between propensity to innovate and to compete on foreign markets, and the use of open-ended contracts and of structured workforce training; on the other side, between traditional, non exportoriented productions and the use of temporary contracts and of cost reduction strategies, including unstructured and short on the job training.