Filippo Passerini (University of Bologna)

LABOR Seminar – Hiring Incentives, Labor Market Concentration, and Wages

Abstract. This paper investigates the twofold effect of an Italian reform, which introduced generous hiring subsidies (HI) for all firms and reduced firing costs (FC) for a subsample of larger firms, on labor market concentration and, in turn, on wages. We set up an event study leveraging the reform’s discontinuity and administrative microdata on individuals’ working careers to estimate an ITT. We find that HI reduces concentration by 6 p.p., and is driven by labor markets with mainly small firms (-13 p.p.). The HHI reduction is hence due to small firms exploiting the HI, which surprisingly survives when the HI is deleted. Wages increase (+2 p.p.) but in the short run. HI had the unintended effect of lowering concentration and temporarily increasing wages coherently with a rent-sharing mechanism between workers and employers. We find that higher concentration reduces wages, but lower concentration does not, while FC reduction does not affect concentration and thus wages in any way.