Does Employment Protection Unprotect Workers? The Labor Market Effects of Job Reinstatements in Peru

Bruno Jimenez and Silvio Rendon

No 13858, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate the labor market effects of the reestablishment of private-sector workers' right to reinstatement for unfair dismissals, which occurred in 2002 in Peru. Using data from Peruvian Household Surveys from 2004 to 2015, and the Specialized Employment Survey 1998-2001, we estimate a quasi-experimental difference-in-difference model. We find that this reestablishment is associated with increases in new contracting in the private sector, by 5.9 % for permanent hiring and 3.0 % for temporary hiring. By means of placebo tests, we only fund a causal effect of the reinstatement on temporary hiring, not on permanent hiring. We also find a negative association between reinstatements and real wages of 3.9 %, but placebo tests indicate that this is not a causal effect. Our findings call into question the effectiveness of removing reinstatement laws as a policy to increase permanent hiring and wages.

Keywords: labor costs; employment; fixed-term contracts (search for similar items in EconPapers)
JEL-codes: E24 J23 J65 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020-11
New Economics Papers: this item is included in nep-law, nep-lma and nep-mac
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Published - published in: Labour Economics, 2023, 80, 102286

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Journal Article: Does employment protection unprotect workers? The labor market effects of job reinstatements in Peru (2023)
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