Spillover effects of employment protection

• Autor(a) principal: Cahuc, Pierre
• Data de Publicação: 2023
• Outros Autores: Carry, Pauline, Malherbet, Franck, Martins, Pedro S.
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/147202
• topic: Employment protection legislation; Spillover effects; Directed search and matching

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. Standard reduced-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-formestimates of the impact of employment protection that rely on firmsize thresholds must be interpreted with caution.