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CEU Economic Seminar Series: The Labor Effects of Pro-labor Bias in Bankruptcy

Online Event
Tim Robberts/Getty Images
Friday, October 15, 2021, 3:45 pm – 5:00 pm

Abstract:
Judicial decisions in bankruptcy are often influenced by the goal of preserving
employment. Using the text of judicial decisions and the random assignment of cases
across courts in the state of Sao Paulo in Brazil, we construct a novel court-level
measure of pro-labor bias and study its effect on labor market outcomes. Employees
of distressed firms assigned to high pro-labor courts are more likely to stay with their
employer; however, they experience a 4.5% decline in earnings. This effect is driven
by wage adjustments, it is stronger for workers with better outside options, and
concentrated in periods of economic expansion.

Featured image: Tim Robberts/Getty Images