The Labor Market Effects of Disability Hiring Quotas

People with disabilities are underemployed across the world. To increase their representation, more than 100 countries have established quota regulations requiring firms to hire people with disabilities. This paper studies the labor market consequences of enforcing modest disability hiring quotas. Using the introduction of a reform in Brazil that enhanced enforcement of a new hiring quota regulation, my market-level analysis finds that people with disabilities in local labor markets more exposed to the reform experienced larger increases in employment and earnings. Leveraging variation in enforcement across firms, I document three key margins along which firms respond to the quota scheme. First, firms hire more workers with disabilities into low-paying jobs. Second, workers with disabilities experience reduced wage growth. Third, the quota also does not come at a cost to workers without disabilities in terms of wages or employment, or to firms in terms of closure. Through the lens of a simple model, I show that the policy generates aggregate welfare gains. My findings support that, in labor markets characterized by discrimination in hiring, mandating modest increases in employment for the disadvantaged can promote redistribution and improve welfare.