Abstract
The economic crisis
that starts in 2007 in the U.S. has had dramatic effects in Italy. The level of
GDP in 2009 falls of 5 percentage points, followed by production, employment
and wages. This scenario underlines the weaknesses of the Italian labor market
and a significant recourse to layoffs especially during the downswing. Although
the evidence indicates that there is a link between aggregate supply and
labour, researches on this topic are fragmented and they are not as
straightforward as they appear. In order to fill this lacuna, by applying a
traditional production function we use a bivariate VAR model to assess whether
aggregate supply is driven by labour force. We use the industrial production
index as proxy of GDP and layoffs as proxy for unemployment. Data are drawn
from the Eurostat database and INPS database over the period 2005-2014. To
take into account the events connected with the recession we add a dummy
variable as an exogenous variable. The Granger causality test shows that in the short run there is a
two-way relation from the industrial production index to ordinary layoffs. From
these results emerge that layoffs ordinary layoffs may be used as a policy to
contrast the economic cycle.