The Employee Costs of Corporate Debarment

Abstract

This paper studies an increasingly popular anti-corruption policy --- corporate debarment or blacklisting --- to understand how both disclosing illicit corporate practices and the sanctions for these practices affect firm and worker outcomes. I exploit a unique policy change in Brazil, implemented in 2014, that imposed stricter penalties for corrupt firms. I combine the universe of firms that were publicly debarred between 2014 and 2016 with detailed matched employer-employee administrative data. Using a matched difference-in-differences approach, 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 by about 26 percent after debarment. The impacts are driven by lost revenues from government contracts. Reputational effects are limited as workers who have previously worked in debarred firms only experience small earnings losses. The results shed light on the costs to workers when their employers are debarred in weighing the consequences of corruption crackdown.