Download This PaperEmployment Protection Legislation and the Macroeconomy: Evidence from Brazil
57 Pages Posted: 27 May 2020 Last revised: 28 May 2020
Date Written: April 29, 2020
Abstract
This paper exploits tenure-dependence in the design of employment protection legislation (EPL) to identify its equilibrium impacts. In our setting, Brazil, EPL applies after a three-month probationary period, incentivizing firms to terminate jobs at exactly 3 months. We develop a structural model in which firms learn about match quality to map this effect on job termination to equilibrium macroeconomic outcomes. We find that EPL without a probationary period leads to a 2.4 percent increase in unemployment and 3.3 percent decrease in output. However, introducing a probationary period completely negates these effects by effectively increasing the value of an initial match.
Keywords: Employment Protection, Efficiency, Job Separation Hazard
JEL Classification: J63, J65, J68
Suggested Citation: Suggested Citation
Joshua Bernstein
Indiana University Bloomington - Department of Economics ( email )
Wylie Hall
Bloomington, IN 47405-6620
United States