The effect of employment protection on firms’ worker selection

Jan Sauermann () and Sebastian Butschek
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Jan Sauermann: Institute for Evaluation of Labour Market and Education Policy (IFAU), Copenhagen Business School; Institute of Labor Economics (IZA); ROA, Maastricht University; UCLS, Uppsala University.
Sebastian Butschek: Leopold-Franzens Universität

No 2025:22, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: To estimate the causal effect of employment protection on firms’ worker selection, we study a policy change that reduced dismissal costs for the employers of over a tenth of Sweden’s workforce. Our difference-in-differences analysis of firms’ hiring uses individual ability measures including estimated worker fixed effects, GPA at age 15, and military test scores. We find that the reform reduced minimum hire quality by around 2%. Our results show that firms both decrease their hiring thresholds and hire more workers. We find that firms increasingly hire young, foreign born and long-term non-employed individuals, suggesting potential welfare gains of the reform.

Keywords: worker selection; screening; hiring standard; employment protection; dismissal costs. (search for similar items in EconPapers)
JEL-codes: D22 J24 J38 M51 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2025-11-27
New Economics Papers: this item is included in nep-eur, nep-hrm and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2025_022

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