Liyan Shi from Carnegie Mellon University will present "When Firms Grow Old: The Rise of Temporary Jobs in Italy" joint with Matteo Paradisi (EIEF) and Liangjie Wu (University of Edinburgh).

Abstract: Temporary employment has risen sharply in Italy as the firm population has aged and business dynamism has declined. This paper develops a mechanism linking these trends. We first document that older firms rely more heavily on temporary contracts. These contracts are used primarily to accommodate transitory fluctuations, rarely lead to permanent jobs, and are associated with lower pay. We then build a firm-dynamics model with persistent and transitory shocks, permanent and temporary contracts, and contract-specific wage bargaining. Permanent jobs provide stability but are costly to terminate, whereas temporary jobs offer flexibility but entail recurring hiring costs. Firms’ hiring decisions therefore depend on shock persistence and their existing stock of permanent workers. Using the model, we examine how a decline in firm turnover and a shift toward transitory shocks contribute to the rise in temporary employment and evaluate policies aimed at promoting stable jobs.