The effect of trial periods in employment on firm hiring behavior

Abstract Recent changes in New Zealand law decreased the cost of dismissing employees within their first 3 months with an employer, with the aim of encouraging firms to increase hiring by reducing the associated risk. We use monthly linked employer–employee data and exploit the staggered introduction of the policy to estimate its effect on hiring. We find that the policy had little effect on the number of hires, the hiring of jobseekers of unknown quality, or the stability of employment. Our results suggest that policies that temporarily lower dismissal costs do not necessarily increase firm hiring.