The Employee Costs of Corporate Debarment in Public Procurement

Abstract

This paper studies an anticorruption policy—corporate debarment, or blacklisting—to understand how disclosing illicit corporate practices and the sanctions for these practices affect firm and worker outcomes. Exploiting a policy change in Brazil that imposed stricter penalties for corrupt firms, I find that debarment is associated with a sizable decline in employment and an increase in the probability of exiting the formal sector. I also document that workers’ annual earnings fall after debarment. The impacts are driven by lost revenues from government contracts. The results shed light on the costs to workers in weighing the consequences of corruption crackdown. (JEL D73, E26, H57, H83, J31, K42, O17)