Does Employment Protection Affect Qualification Mismatch?

This article investigates the effect of the relaxation of the rigidity of employment protection legislation in dual economies on qualification mismatch, measured as the sum of over‐education and under‐education. Using a unique matched employer–employee flow dataset, the effect of two reforms, which significantly modified the rules for the utilization of temporary contracts in Italy, is studied. By increasing the relative flow of workers on short‐term contracts, the short‐term contract reform is found to have reduced the relative flow of over‐educated workers. However, this result holds only for older male workers, while no effect is found for female and younger workers. The apprenticeship reform instead had no major effects on the relative flow of mismatched workers.