Abstract: This thesis analyzes the effects of Employment Protection Legislation (EPL) on firms’ labor decisions. The first chapter presents an empirical evaluation of the legislation concerning EPL in the labor demand of heterogeneous firms. The overall effect of EPL on the demand for labor has been a subject of debate, because no clear answer has been found on the total labor demand. In this chapter I find that EPL negatively affects the demand for labor, specially the demand for unskilled workers. Thus, in presence of increasing firing costs, heterogeneous firms have heterogeneous responses in their labor demand. The second chapter The second chapter the impact of stringent EPL (employment protection legislation) in the propensity to downsize, exploiting the heterogeneity of productivity levels of firms within each sector. Using a simple theoretical model and an empirical application, the evidence presented in this chapter strongly supports the idea that when firing costs are higher the probability of doing downsizing will decrease but heterogeneously. The differences arise from sectors price growth rates, firm productivity and labor wedge.