The Impact of Extending Employment Protection to Agency Workers on Firms
33 Pages Posted: 29 May 2018 Last revised: 23 Mar 2021
Date Written: March, 2021
We study the impact of a reform that extended employment protection to temporary agency workers. Leveraging data of manufacturing firms, we show that plants more exposed to the regulation experienced a decrease in revenues and total employment, and that these effects were attenuated in industries with high elasticity of substitution between agency and non-agency workers. We also present evidence that labor misallocation increased because of the regulation, especially at plants in sectors with high elasticity of substitution. A simple model of labor demand in the presence of agency work rationalizes these results.
Keywords: employment composition, employment protection and demand for temporary agency workers
JEL Classification: J41, J08
Suggested Citation: Suggested Citation