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Open Access Publications from the University of California

The Impact of Extended Employment Protection Laws on the Demand for Temporary Agency Workers

  • Author(s): Munoz, Pablo
  • Micco, Alejandro
  • et al.

We study the impact of a reform that increased the regulatory burden on temporary agency work (TAW) in Chile. Using a panel of manufacturing plants, we show that the use of TAW fell immediately after the regulation, with differential effects by plants’ size and volatility. Difference-in-differences estimates suggest that plants using TAW substituted away from agency workers after the regulation, increasing regular work by 9.2%. Despite this substitution effect, total employment decreased by 8.6% in these plants. We report less precise evidence of negative scale effects on output and profits.

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