Are alternative work arrangements a substitute for standard employment? Evidence from worker-level data

Purpose We analyze the impact of vouchers, an Italian alternative work arrangement, on earnings of atypical workers. We investigate whether this form of very flexible casual work substitutes for income from more standard labor contracts and from employment insurance programs. Design/methodology/approach We provide a conceptual framework to motivate our empirical approach. We rely on panel data estimators and a difference-in-differences specification that exploits a plausibly exogenous variation in the use of vouchers. We rely on high-quality administrative data. Findings Around 50% of reductions in earnings from vouchers can be compensated by higher income derived from standard labor contracts and from employment insurance programs. Among intensive users, only around 10% of losses in earnings from vouchers are compensated by other income sources. Practical implications The costs–benefits analysis of restrictions in flexible work arrangements should take into account the short-run earning losses documented in our study. These policies could be complemented by targeted interventions on atypical workers to compensate for such losses. Originality/value We propose a theoretically motivated empirical approach to evaluate the impact of atypical work arrangements on the earning potential of flexible workers, relying on high-quality administrative data. We implement a variety of empirical approaches to deal with several potential estimation problems, including sample selection and endogeneity.