Employment Protection Reforms: From Firm-Level Effects to Aggregate Outcomes

Pierre Cahuc (), Pauline Carry, Franck Malherbet and Pedro Martins
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Pierre Cahuc: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique
Pauline Carry: Princeton University
Franck Malherbet: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique - IP Paris - Institut Polytechnique de Paris

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Abstract: Employment protection legislation often varies with firm or establishment size and age, and many evaluations of EPL reforms exploit these thresholds. This paper develops a search-and-matching model with multi-establishment firms to disentangle direct effects from general-equilibrium spillovers. We combine the model with quasi-experimental evidence from a 2009 Portuguese reform that restricted fixedterm contracts in young establishments of large firms. Spillovers barely distort the reduced-form estimate, yet they overturn the aggregate conclusion: extrapolating the reduced-form estimate implies a 1.51% employment decline, compared with a 0.11% increase in general equilibrium. Counterfactuals show that conditioning EPL on size versus age can yield opposite welfare effects, even when employment effects are similar, and that fixed-term contract and firing restrictions must be evaluated jointly.

Keywords: employment; protection; legislation; reforms (search for similar items in EconPapers)
Date: 2026-09-02
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05737149v1
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Working Paper: Employment Protection Reforms: From Firm-Level Effects to Aggregate Outcomes (2026)
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