DP2804 | Are Judges Biased by Labour Market Conditions? The Selection of Firing Litigations for Trial in an Italian Firm

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When a firing litigation is taken to court, only the characteristics of the employees? misconduct should be relevant for the judge?s decision. Using data from an Italian bank this Paper shows that, instead, local labour market conditions influence the court?s decision: the same misconduct episode may be considered sufficient for firing in a tight labour market but insufficient otherwise. This finding is obtained after taking carefully into consideration the non-random selection of firing litigation for trial. The existence of a judge?s bias is relevant for at least two research fields. For macroeconomists it suggests that higher unemployment rates may increase firing costs via the effect on courts? decision criteria; thus, the real extent of firing rigidities cannot be assessed without considering the role of courts. For labour law scholars, this finding is important because, following traditional principles, the law should be applied in the same way for all citizens and over the entire national territory.