Working Paper: NBER ID: w28640
Authors: Aloisio Araujo; Rafael Ferreira; Spyridon Lagaras; Flavio Moraes; Jacopo Ponticelli; Margarita Tsoutsoura
Abstract: We study the effect of judicial bias favoring firm continuation in bankruptcy on the labor market outcomes of employees by exploiting the random assignment of cases across courts in the State of São Paulo in Brazil. Employees of firms assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages three to five years after bankruptcy. We discuss several potential mechanisms that can rationalize this result, and provide evidence that imperfect information about outside options in the local labor market and adjustment costs associated with job change play an important role.
Keywords: Judicial Bias; Bankruptcy; Labor Market Outcomes
JEL Codes: G33; J30; K0; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| judicial bias (K40) | labor market outcomes (J48) |
| procontinuation court (K40) | employee retention (M51) |
| procontinuation court (K40) | duration of employment (C41) |
| procontinuation court (K40) | wages (J31) |
| imperfect information about outside options (D89) | employee retention (M51) |
| adjustment costs associated with job changes (J62) | employee retention (M51) |