Measuring the effects of employment protection policies: Theory and evidence from the Americans with Disabilities Act

Title I of the Americans with Disabilities Act (ADA) is an employment protection policy for disabled workers. By exploiting cross-state variation in pre-ADA legislation, we measure the effects of the law on transition rates of disabled workers. We find a decline in employment-to-non-employment transitions after the ADA, with an insignificant change in flow into employment. We use a model to disentangle the costs of firing and hiring imposed by the ADA. Our findings suggest that the ADA induces firms to fire less frequently but become more selective with new hires, impacting the aggregate productivity of the workforce and output of the economy.