Substitution, entrapment, and inefficiency? Cohort inequalities in a two-tier labour market

Abstract

Abstract In this article, we provide a longitudinal account of institutionally originated, cohort inequalities in a two-tier labour market, taking Italy as an exemplary case of partial and targeted deregulation. We examine the incidence and career consequences of temporary employment relying on panel data, across reforms implemented in the 1990s and early 2000s. A substitution effect is found for the initial stages of workers’ careers: while the youngest cohorts of school-leavers increasingly enter the flexible labour market, access to stable positions is hampered. Previous experiences in the flexible segment of the labour force also increase the risk of entrapment in temporary jobs. This lock-in dynamic is more visible for post-reforms cohorts and might have increased labour market inefficiency. Indeed, the entrapment risk has risen disproportionately for those individuals whose (un)observed characteristics could instead predict a faster exit from the flexible labour market, possibly towards stable positions. Our findings cast doubts on the transitory nature of temporary work in Italy and on the efficiency of partial and targeted reforms.