The temporary impact of permanent hiring incentives: Evidence from Italy

2025-09-12

AI Summary

This study evaluates the causal impact of Italy’s Tuscany region’s “social contribution exemption” policy, which incentivizes the conversion of temporary to permanent employment contracts. Leveraging high-quality administrative labor market data, we combine difference-in-differences (DID) with regression discontinuity design (RDD) to identify the effect of a 2018 eligibility threshold adjustment. Results show that the policy significantly increases short-term contract conversions, with no evidence of displacement effects among non-eligible workers. However, it fails to generate net long-term growth in permanent employment; instead, it merely accelerates conversions that would have occurred later. The key contribution is identifying the temporal limitation of such fiscal incentives: while effective at speeding up transitions, they do not expand the overall stock of permanent jobs. This provides rigorous causal evidence relevant for designing labor market policies aimed at improving job stability and quality.

Technology Category

Philosophy and Ethics of AI: AI & Jobs/LaborGame Theory and Economic Paradigms: Imperfect InformationMachine Learning: Causal Learning

Application Category

Economics, Online Markets and Human Computation: LLM based quality controls for crowd workResponsible Web: Human-perceived consequences of algorithmic deployment on the webWeb Mining and Content Analysis: Web data quality in the era of algorithmically-generated content

Abstract

This paper evaluates the short and medium-term effectiveness of hiring incentives aimed at promoting the permanent conversion of temporary contracts through social contribution exemptions. Using rich administrative data from Tuscany, providing detailed employment histories, we use difference in differences and regression discontinuity designs to exploit a unique change in eligibility criteria in 2018. We find that the incentives immediately increased the probability of conversion, with no evidence of substitution against non-eligible cohorts. However, these positive effects were short-lived and appear to reflect anticipated conversions, as we find null longer-term effects on permanent hirings.

Problem

• Evaluating short-term effectiveness of hiring incentives
• Assessing medium-term impacts on permanent contract conversions
• Analyzing substitution effects and long-term hiring outcomes

Innovation

• Difference-in-differences analysis of hiring incentives
• Regression discontinuity design exploiting eligibility changes
• Administrative data tracking employment conversion effects