Diversity and/or Inclusion? Evidence from Disability Quota and Inclusion Laws in Brazil

This paper investigates how firms respond to legislative pressures to pursue diversity and inclusion goals. Adopting a question-driven approach, we study firms' responses to legislation aimed at improving employment conditions for people with disabilities (PwD) in Brazil. Specifically, we analyze two significant legislative shifts: one in 2012, aimed at strengthening enforcement of pre-existing (diversity-oriented) disability quotas, and another in 2015, focused on broader inclusion of PwD in society. Applying various econometric approaches to a comprehensive matched employer-employee database, and drawing insights from in-depth interviews, we find that, while the changes in legislation led to significantly increased hiring of PwD, these average effects mask important heterogeneity. Accordingly, responses to the law changes were significantly stronger for quota laggards––i.e., firms that fail to meet their disability quotas––particularly for those trailing their quotas by wider margins. Community-level support for PwD (proxied by the existence of school facilities adapted to the needs of PwD in the vicinity of a firm's headquarter) was also associated with stronger responses, while firms' commitments to diversity in dimensions other than disability (i.e., race, gender, and education background) were associated with weaker responses. Critically, we also show that, in the absence of a complementary inclusion law, heightened diversity efforts may come at a cost to inclusion: higher representation was associated with an increase in the disability wage gap that was equivalent to a 5-year setback to equitable wages of PwD. These greater wage disparities were only mitigated following the enactment of the inclusion law.