Permanent (annual or longer term) agricultural employment declined relative to temporary (daily, weekly or seasonal) employment during the 1960s in a sugar cane producing region in northeastern Brazil, but increased rapidly during the 1970s. Predictions from economic theory are combined with observations about the economic forces at work during the period to argue that in the absence of government intervention permanent employment would likely have risen during both decades. The argument renders the introduction of the Brazilian Rural Labor Statute (RLS) of 1963 a strong candidate explanation for the decline of permanent employment in the 1960s. The RLS's "employment stability" provision, which required employers to make severance payments to workers (with at least one year tenure) dismissed without just cause, not only increased the expected cost of permanent contracts but also changed the very nature of permanent employment. Prior to the legislation employers induced permanent workers to be "subject" to them by giving them premium wage and benefits packages and threatening to dismiss them if caught shirking in subjection. Severance pay provisions made such threats incredible. The elimination of farmers' ability to derive subjection benefits from permanent employees reduced even further the incentive to hire workers under permanent contracts. © 1993.