February 2020

IZA DP No. 12991: Fertility Decisions and Employment Protection: The Unintended Consequences of the Italian Jobs Act

published as 'Employment protection and fertility decisions: the unintended consequences of the Italian Jobs Act' in: Economic Policy, 2021, 36 (108), 735 - 773

We study the effect of a reduction in employment protection on fertility decisions. Using data from the Italian Labor Force Survey for the years 2013-2018, we analyze how the propensity to have a child has been affected by the 2015 Labor Market Reform, the so-called "Jobs Act", which has essentially reduced the employment protection for large-firm employees and leaved largely unchanged that for small-firm ones. We employ a Difference-in-Differences identification strategy and compare the average change over time in fertility decisions of women employed in large firms with the average change experienced by women employed in small firms. We find that women exposed to the reduction in employment protection have a 1.4 percentage point lower probability of having a child than unexposed women. A battery of robustness checks confirms this finding. We document large heterogeneous effects by marital status, parity, geographic areas as well as by the level of education and wage. Our findings help understand the potential unintended consequences that reforms introducing more labor market flexibility have on fertility decisions by increasing insecurity on career prospects.