Dignity by Decree? The Employment and Wage Effects of Restricting Fixed-Term Contracts

Abstract

The Dignity Decree was a 2018 reform aimed at restricting the use of fixed-term contracts in the Italian labor market. We examine how this regulatory intervention affected firm-level employment dynamics and worker wages. We find negligible disemployment effects and a significant shift in contract composition: firms more exposed to the reform substantially reduced their use of fixed-term contracts, offsetting the decrease with an increase in permanent employment, primarily through the conversion of existing temporary jobs. We further document a sizeable decline in the post-conversion wage for workers transitioning from fixed-term to permanent contracts compared to pre-reform levels.