Judge Bias in Labor Courts and Firm Performance

Pierre Cahuc (1, 2, 3) , Stéphane Carcillo (1, 2) , Bérangère Patault (4) , Flavien Moreau (5)

1 ECON - Département d'économie (Sciences Po)
2 IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics
3 CEPR - Center for Economic Policy Research
4 UvA - University of Amsterdam [Amsterdam]
5 IMF - "Research Department International Monetary Fund (IMF)"

Does judge subjectivity in labor courts influence firm performance? We study the economic consequences of judge decisions by collecting information on Appeal court rulings, combined with administrative firm-level records covering the whole universe of French firms. The quasi-random assignment of judges to cases reveals that judge bias, defined as judge-specific differences on granting compensation for wrongful dismissal, has statistically significant effects on the survival and employment of small firms, especially among very small and low-performing ones. When compensation for wrongful dismissal is instrumented by judge bias, an increase in compensation of 1 percent of the payroll reduces employment growth by 5 percentage points after 3 years for those firms.

Keywords: Dismissal compensation; Judge bias; Firm survival; Employment

Domains: Economics and Finance

Pierre Cahuc, Stéphane Carcillo, Bérangère Patault, Flavien Moreau. Judge Bias in Labor Courts and Firm Performance. 2022. ⟨hal-03881619⟩