Labor Courts, Job Search and Employment: Evidence from a Labor Reform in Brazil

46 Pages Posted: 9 Jun 2022

See all articles by Raphael B. Corbi

Raphael B. Corbi

University of Sao Paulo

Renata Narita

University of São Paulo (USP)

Rafael Ferreira

University of São Paulo (FEA-USP) - Department of Economics

Danilo Souza

Insper Institute of Education and Research

Date Written: May 27, 2022

Abstract

This paper studies the role of labor courts in determining labor market outcomes in the Brazilian economy. First, by exploring the fact that judges are assigned randomly to cases and using the universe of labor lawsuits filed in the country's largest labor courthouse from 2008 to 2013, we show that small firms that draw a more pro-worker judge hire less, experience greater financial distress and exhibit lower survival rates. Second, we develop and calibrate a search-matching model in which laid-off workers decide whether to take firms to court or not. The model is then used to conduct counterfactual exercises simulating the changes brought by a large labor reform in 2017 that transferred part of the legal costs from firms to workers if plaintiff's case is dismissed. Our model replicates well a set of features of the Brazilian labor market. The counterfactual analysis suggests that this cost-shifting policy implied significant positive e ects on employment and aggregate output.

Keywords: employment protection, labor costs, firm survival, search frictions

JEL Classification: J3, J63, J64, J65, J83, K31

Suggested Citation

Corbi, Raphael B. and Narita, Renata and Ferreira, Rafael and Souza, Danilo, Labor Courts, Job Search and Employment: Evidence from a Labor Reform in Brazil (May 27, 2022). Available at SSRN: https://ssrn.com/abstract=4121304 or http://dx.doi.org/10.2139/ssrn.4121304

Raphael B. Corbi (Contact Author)

University of Sao Paulo ( email )

Rua Carlos Del Prete, 265, apt
265, apto101
Sao Paulo, SP 09710-230
Brazil
09710230 (Fax)

Renata Narita

University of São Paulo (USP)

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

Rafael Ferreira

University of São Paulo (FEA-USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo
Brazil

Danilo Souza

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

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