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Hiring Subsidies and Firm Growth: Some New Evidence from Italy

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Abstract

Hiring subsidies are among the most widely used policies to support employment growth for certain groups of workers or disadvantaged geographic areas. In this article, we analyze the medium-run consequences of a generous, non-targeted permanent hiring subsidy implemented throughout Italy in 2015, which was widely used by firms. The results indicate that firms benefiting from the subsidy increased in size. However, compared to other firms, the growth rate of capital–labour ratio and value added per worker were lower after the subsidy. We conclude that policies to stimulate hiring must be accompanied by other interventions to support capital accumulation.

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Data Availability

The non-restricted data are available from the authors.

Notes

  1. It would be interesting to check if and how the estimated effects change over a longer horizon. However, the Covid-19 pandemic might have changed the data generating process. For this reason, we did not attempt to include years between 2020 and 2022.

  2. Available for the period 2010–2018 thanks to a research project with ANPAL, the Italian agency for active employment policies.

  3. By merging INPS with CO we lose about 28% of the INPS firms. The two dataset do not fully overlap because of the administrative nature of the two samples. For instance in INPS two firms of the same parent group (with different fiscal identifiers) are recorded as a unique firm if one of the two firms pays social security contributions also for the other company. They instead are separately recorded in CO.

  4. The subsidy was introduced also to foster the adoption of a new type of permanent contract characterised by lower firing costs for firms with at least 15 employees (introduced in March 2015 by the so-called Jobs Act reform). See Sestito and Viviano (2018) for an evaluation of the overall impact of the hiring subsidy and the Jobs Act.

  5. https://www.inps.it/dati-ricerche-e-bilanci/osservatori-statistici-e-altre-statistiche/report-cartaceo; year 2015.

  6. We experimented other cutoff dates, reaching the same results.

  7. Results are qualitatively similar if we apply weights based on wages.

  8. On the contrary, our choice implies that the analysis considers only continuing firms from 2013 or before. Firms starting after the introduction of the policy need to hire individuals, by definition. This would mechanically increase the hiring rate. Therefore, their hiring would not be the effect of the policy alone. For this reason, we exclude these firms from the sample. Similar considerations, in the opposite direction, hold for firms exiting the market after the policy.

  9. One approach to purge from the higher propensity to hire on a permanent basis in 2011 and 2012 is to deflate the estimated effect of 2015 by 0.1, i.e. the size of the coefficients in 2011 and 2012 (Conley et al. 2012). Given the small size of the coefficients, the results do not change.

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Authors and Affiliations

  1. Economics and Statistics Department, Banca d’Italia, Via Nazionale, 91-00184, Rome, Italy

    Domenico Depalo & Eliana Viviano

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  1. Domenico Depalo
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  2. Eliana Viviano
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Correspondence to Domenico Depalo.

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We have no relevant financial or non-financial interests to disclose. We would like to thank the Guest Editor, Roberto Torrini, and the reviewer for the constructive comments. We also thank Antonio Accetturo, Giuseppe Albanese, and the seminar participants at the Bank of Italy. Replication files and additional results will be available at the webpage: http://sites.google.com/site/domdepalo/. The views expressed in this paper are those of the authors and do not imply any responsibility of the Bank of Italy.

Appendix

Appendix

See Figs. 9, 10, 11 and 12.

Fig. 9
figure 9

Hiring rate as a function of IV (sum of hires and conversions divided by firm size in 2013)—excluding the zeros. Note: Interactions of IV with year dummies. Vertical bars represent 95% confidence intervals. Standard errors clustered at the firm level. Additional controls: firm and year fixed effects

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Fig. 10
figure 10

Hiring rate as a function of IV (sum of hires and conversions divided by firm size in 2013)—IV at the 50th percentile. Note: Interactions of IV with year dummies. Vertical bars represent 95% confidence intervals. Standard errors clustered at the firm level. Additional controls: firm and year fixed effects

Full size image
Fig. 11
figure 11

Hiring rate as a function of IV (sum of hires and conversions divided by firm size in 2013)—IV at the 90th percentile. Note: Interactions of IV with year dummies. Vertical bars represent 95% confidence intervals. Standard errors clustered at the firm level. Additional controls: firm and year fixed effects

Full size image
Fig. 12
figure 12

Share of hiring rates of the permanent vs temporary workers as a function of IV (sum of hires and conversions divided by firm size in 2013). Note: Interactions of IV with year dummies. Vertical bars represent 95% confidence intervals. Standard errors clustered at the firm level. Additional controls: firm and year fixed effects

Full size image

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Depalo, D., Viviano, E. Hiring Subsidies and Firm Growth: Some New Evidence from Italy. Ital Econ J (2024). https://doi.org/10.1007/s40797-023-00261-3

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