policymakers demonstrate

108 Juan J. Dolado
The economic motives for dismissals are unified. During the first two years of
an employment relationship, being either of a temporary or permanent nature,
the worker is entitled to a redundancy payment of one month of salary per year
of service. In addition, in case of a dismissal due to economic reasons beyond
the third year the worker is entitled to an additional contribution on top of the
redundancy payment and the statutory unemployment benefits introduced after
the Monti-Fornero reform. This additional component is supposed to bring the
replacement rates of the worker during the first months of unemployment to
levels comparable to the level prevailing in a country like Denmark, but this
point is not essential.
The true value of Ichino’s proposal is his defence of redundancy pay as a
valid legal instrument against unfair dismissal. The costs associated with dismissals
prevent that firms dismiss a worker without some ground and the intervention
of the judges should be limited to preventing that these grounds are
illicit, that is, judges should not be asked to perform an in-depth review of
the economic motives for a dismissal. Thus his views are close to the view of
economists who interpret firing costs as a Pigouvian tax that helps to align the
private and social costs from separation.
Ichino’s proposal does not include outright restrictions on the use of fixedterm
contracts. After the introduction of severance pay obligations for fixedterm
contracts, the new open-ended contract should offer sufficient advantages
to employers and workers to become the voluntary default option in the vast
majority of hirings. In that sense, the proposal is less ambitious than the one
formulated by Boeri and Garibaldi. By contrast, Ichino is in favour of much
stronger limitations on the interventions of judges.
Notes
1. EPL is multidimensional and includes regulations pertaining to severance pay and
advance notice of layoffs, restrictions on valid reasons for individual and collective
dismissals, rules governing the use of fixed-term contracts, and restrictions concerning
temporary work agencies. EPL may affect labour cost directly (via mandated
severance pay) or indirectly via red tape costs.
2. See Autor and Houseman (2010) for a more negative view on the role of temporary
help-jobs relative to jobs placements through direct-hire employers in the US.
3. Almost 92 per cent of all new hires in Spain over the last two years have relied
on temporary contracts. The same happens in Italy (83.4% in 2013 according to
Garibaldi and Taddei, 2013).
4. According to the Spanish Labour Force Survey, two-thirds of workers dismissed
during that period in Spain had a TC.
5. The evidence offered in García-Pérez and Rebollo (2009) shows that five years of
seniority and more than seven contracts were required on average until the year 2008