Nello Esposito (University of Naples Federico II)
Leveraging an Italian labour market reform known as the Jobs Act (JA), I study the effect of employment risk on household consumption and labour supply. The JA reduced protection against unlawful individual termination only for workers hired on or after March 7, 2015. Using this time-based discontinuity in employment protection as a source of exogenous variation in employment risk, I find that workers subject to the reform consume 89% less and work one additional hour per week compared with workers hired before March 7, 2015. A battery of robustness checks confirms these findings. The effect is stronger among individuals younger than 40 and among people living in Northern Italy. Finally, I show that a variant of the BewleyHuggettAiyagari model, augmented with employment risk heterogeneity and calibrated to Italian labour market flows and reasonable risk aversion, closely matches the empirical result on consumption, and that employment risk accounts for more than two-thirds of the effect.