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The effect of employment protection on firms’ worker selection

Author

Listed:
  • Sauermann, Jan

    (Institute for Evaluation of Labour Market and Education Policy (IFAU), Copenhagen Business School; Institute of Labor Economics (IZA); ROA, Maastricht University; UCLS, Uppsala University.)

  • Butschek, Sebastian

    (Leopold-Franzens Universität)

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.

Suggested Citation

  • Sauermann, Jan & Butschek, Sebastian, 2025. "The effect of employment protection on firms’ worker selection," Working Paper Series 2025:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2025_022
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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