Should I stay or should I go? The effect of high dismissal protection on the turnover and productivity of public sector employees

We study the impact on turnover and productivity of granting high dismissal protection to civil servants in the context of public school teachers in Chile. We take advantage of a law that required all public education administrators to grant a permanent contract to temporary teachers with at least three consecutive years of experience in 2014. Using a difference-indifferences estimation, we first compare the subsequent turnover of teachers with temporary contracts who had two and three years of experience in 2010–2014. We find that high dismissal protection reduces teacher turnover by 25 percent in the first two years of implementation. We then examine the impact of dismissal protection on teacher productivity (i.e., value added to student learning), and we do not find an overall effect on test scores. When we keep the composition of teachers fixed, isolating the effort channel from the selection channel, we observe a significant decline in the learning of students taught by teachers with low baseline performance. These findings highlight the potential pitfalls of granting high job security irrespective of job performance.