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

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  • Jiménez, Bruno

    (Princeton University)

  • Rendon, Silvio

    (Inter-American Development Bank)

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.

Suggested Citation

  • Jiménez, Bruno & Rendon, Silvio, 2020. "Does Employment Protection Unprotect Workers? The Labor Market Effects of Job Reinstatements in Peru," IZA Discussion Papers 13858, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13858
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    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • 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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