We estimate the labor market impacts of Brazil’s 1993 outsourcing legalization us-ing North-South variation in pre-legalization court permissiveness, and comparing security guards to less-affected occupations. We find that outsourcing legalization persistently reallocated jobs from older incumbent guards to younger entrants. Total employ-ment of guards and their entry from informality persistently increased, while average demographic-adjusted wages remained constant. Meanwhile, a wave of occupational layoffs displaced some incumbent guards from high-wage firms. The evidence suggests that the rise of non-core activity outsourcing reduced labor market frictions, facilitated by firm-level economies of scale in human resources and spillovers to non-adopting firms.
