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

This paper studies a fundamental trade-off created by quota laws and similar policies that seek to increase workplace diversity by mandating the hiring of disadvantaged populations. We show that firm-level responses to these policies can benefit members of the targeted population seeking entry into employment while imposing unintended costs on those already employed. Failure to account for this trade-off may lead firms and policymakers, when focused exclusively on the promotion of diversity, to pursue initiatives that may undermine the inclusion of incumbent underrepresented workers. To study this trade-off, we develop a conceptual framework and empirically examine employment outcomes for people with disabilities (PwD) in Brazil. Specifically, we study firms’ heterogeneous responses to an evolving institutional landscape: a 2012 reform that strengthened enforcement of Brazil’s pre-existing but largely ineffective disability quota law, and the subsequent 2015 Inclusion Law, a broader nondiscrimination statute that expanded societal protections for PwD. Using matched employer-employee data, we find that stricter quota enforcement significantly increased hiring of PwD, particularly among noncompliant firms that began recruiting from previously underutilized labor pools. Yet these gains in representation came with uneven consequences for inclusion: although job stability improved, wage gaps widened and career progression slowed for incumbent PwD relative to non-PwD, especially within firms that had failed to meet their quota targets. These adverse consequences persisted despite the enactment of the Inclusion Law, underscoring that nondiscrimination frameworks may be insufficient to offset the unintended consequences of quota laws.