Balancing productivity and employment in the digital age: empirical evidence from Italy’s Transition 4.0 program

This study examines the relationship between the Italian Recovery and Resilience National Plan (RRNP) funds targeting the Transition 4.0 and firm-level productivity and employment. Combining panel event studies with continuous two-way fixed effects models, we find that RRNP funds positively affect both total factor productivity (tfp) and employment. Receiving support is associated with an increase in tfp by 7% and employment by 4–5%, while a 1% rise in funding is associated with a 1.3–1.4% increase in tfp and a 0.5–0.6% increase in employment. We document substantial heterogeneity across firms operating in different sectors, with larger effects in Information and Communication Technology (ICT). Moreover, training-focused projects are associated with strong firm performance. We find significant regional variation, with more pronounced results in Northern Italy. Overall, policy effectiveness is linked to sectoral and territorial conditions, highlighting the need for differentiated, place-based industrial strategies.