Spillover effects of employment protection

Pierre Cahuc, Pauline Carry, Franck Malherbet and Pedro Martins

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: Estimates of the impact of employment protection heavily rely on reduced-form methods, assuming that there are no indirect effects between firms. This paper exploits a labor law reform implemented in Portugal in 2009 which restricted the use of fixed-term contracts for large firms above a specific size threshold,to investigate and quantify spillover effects. Standardreduced-form estimates based on the hypothesis of the absence of spillover towards firms for which the reform does not apply yield a negative impact on employment of about 1.5%. However, we find evidence of significant spillovers. The estimation of the macroeconomic effects of the reform with a search and matching model accounting for spillovers yields an almost negligible employment impact of the reform, more than ten times smaller than that obtained with the reduced form estimates. This result underlines that the numerous reduced-form estimates of the impact of employment protection that rely on firm size thresholds must be interpreted with caution.

Keywords: Employmentprotection legislation; Spillover effects; Directed search and matching (search for similar items in EconPapers)
JEL-codes: J23 J41 J63 (search for similar items in EconPapers)
Pages: 111 pages
Date: 2023
New Economics Papers: this item is included in nep-bec, nep-dge, nep-eur and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp655

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