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

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Listed:
  • Cahuc, Pierre
  • Carry, Pauline
  • Malherbet, Franck
  • Silva Martins, Pedro

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 fixed-term 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.

Suggested Citation

  • Cahuc, Pierre & Carry, Pauline & Malherbet, Franck & Silva Martins, Pedro, 2026. "Employment Protection Reforms: From Firm-Level Effects to Aggregate Outcomes," CEPR Discussion Papers 21915, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21915
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    Keywords

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    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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