Impact of an Employment Policy on Companies' Expectations Fulfilment

TL;DR

This study examines how Chile's Employment Protection Law during COVID-19 influenced firms' expectations about layoffs, showing that the law reduced actual job separations among firms expecting to fire workers.

Contribution

It provides empirical evidence on the impact of employment protection policies on firms' expectation fulfillment during a pandemic crisis.

Findings

Firms using EPL had 50% lower odds of actual layoffs.

Small firms' expectation fulfillment increased by 11.9% with EPL.

EPL effectively reduced layoffs among firms expecting to fire.

Abstract

We study the effect of Chile's Employment Protection Law (Ley de Protecci\'on del Empleo, EPL), a law which allowed temporal suspensions of job contracts in exceptional circumstances during the COVID-19 pandemic, on the fulfillment of firms' expectations regarding layoffs. We use monthly surveys directed at a representative group of firms in the national territory. This panel data allows to follow firms through time and analyze the match between their expectations and the actual realization to model their expectation fulfilment. We model the probability of expectation fulfilment through a logit model that allows for moderation effects. Results suggest that for those firms that expected to fire workers, for the firms that used the EPL, the odds they finally ended up with a job separation are 50% of the odds for those that did not used the EPL. Small firms increase their probability of expectation fulfilment in 11.9% when using the EPL compared to large firms if they declared they were expecting to fire workers.