Labour Courts and Firing Costs: Effects of Trial Delays on Labour Market

Employment protection is the result of labor laws as well as of institutional factors not encompassed in official legislation. Courts’ delays in settling labor disputes are among those factors. Using individual data from the Italian Labour Force Survey (2008–2010) and exploiting the territorial heterogeneity in the duration of labor trials across Italian regions we investigate the effect of courts’ delays on the composition of employment. We find that labor courts’ delays reduce the employment rate and increase inactivity of specific categories of workers, i.e., women, young, and low-skilled individuals; they also reduce the likelihood of accessing a permanent occupation and increase the incidence of long-term unemployment for the same groups of workers.