Abstract: In this paper, I study how firing costs affect which firms create new jobs and which workers get hired. To identify a causal effect, I exploit two Italian reforms that decreased firing costs for firms above 15 employees, while leaving smaller ones unaffected. Using extensive linked employer-employee data covering the careers of 2.8 million workers, I show that new jobs created because of the reform are concentrated in low wage firms. Specifically, post-reform hires are made by firms that pay wages on average 3-7% lower than before the reforms. On the contrary, I find no evidence that firms become less selective on the type of workers they hire. Using a simple theoretical model, I show that lower firing costs raise the value of all jobs, allowing some firms that were not productive enough before the reform to start hiring. Moreover, as less productive firms are likely to exhibit higher firing rates, the hiring incentive following the decrease in firing costs is stronger for them. The quality of new jobs falls, as they are associated with lower wage levels, shorter duration and -if temporary- a smaller probability of being transformed into permanent contracts.