Human capital, unemployment, and probability of transition to permanent employment in the Italian regional labour markets

In the last decade Italian and European labour markets have been characterized by a strong increase of temporary employment and the recent approval of the Biagi Law is often assumed to be a factor to boost temporary work in Italy. Referring to some theoretical frameworks, we could look at this situation in terms of a contractual exchange. In this manner workers (or trade unions) could accept more precariousness in exchange for higher employment rates3. Nevertheless a number of empirical researches show that, since allowing for more temporary jobs to be created entails an increase in both job creation and job destruction, the effects on total employment are uncertain4. In any case, even if we believed that more precariousness involves higher employment rates, another very important question would emerge, that is: how long are people going to spend in precarious jobs?In effect the recent evolution of labour markets induced many economists to investigate the nature of temporary work, and one of the most important question to answer has been: can temporary jobs serve as stepping stones to enter stable employment or do they represent dead-end jobs? On the one hand, temporary contracts should help the unemployed to get (back) into employment and to find a stable job, by reducing unemployment spells, the risks of long-run unemployment, and by preserving/improving their human capital through on the job experience. In this case temporary contracts would be a way to select the future permanent employees6. On the other hand, it has been argued that, if temporary work is characterized by worse monetary and non-monetary conditions than stable jobs, and if flexible firms adopt a segmentation of the workforce into a "core" of stable jobs and a periphery of temporary workers, then dual labour markets may arise and precariousness may become a trap. In any case, the variables involved in this phenomenon seem to be very complex and, as far as other theoretical contributions are concerned, in this paper I intend to focus upon the influence of learning processes, human capital accumulation and unemployment rates at local level. In particular, to highlight the influence of these variables on the probability of escaping from the temporary work trap and on the intensity of transition to permanent employment, after developing a simple theoretical model, a discrete time duration model with gamma-distributed unobserved heterogeneity, based on ECHP data for Italian regions (1995-2001), will be estimated. The paper is organized as follows. Section 2 presents a simple theoretical model in which the intensity of transition between precarious and stable jobs depends on individual human capital and unemployment rates at regional level; section 3 illustrates the steps of my empirical analysis; section 4 presents the econometric model I used; section 5 is devoted to the empirical estimates and the discussion of the main results. Some concluding remarks and policy implications follow.