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Job Loss and the Fraying of the Implicit Employment Contract

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  • Kevin F. Hallock

Abstract

Most workers have one employment contract that is explicit and another one that is implicit. The explicit employment contract specifies working hours, compensation, and job tasks. The implicit contract involves expectations about the extent to which the employment relationship is likely to continue over time. Will the firms will seek to avoid mass layoffs unless or until absolutely necessary? Will firms cushion the wages and compensation of employees to some extent from broad swings in the economy? Will employees show some degree of loyalty to the firm? This paper will argue that, along a number of dimensions, the nature of the worker-firm employment relationship may have changed substantially in recent years -- a group of changes that as a whole have negatively affected the lives of workers and produced modest, if any, benefits for firms. If employers have become less involved with cushioning the blow of unemployment and avoiding layoffs where possible, then public policy might have a role to play in spreading the burden of a down labor market so that the burden is not borne so heavily by those who lose their jobs entirely.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.4.69
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 23 (2009)
Issue (Month): 4 (Fall)
Pages: 69-93

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Handle: RePEc:aea:jecper:v:23:y:2009:i:4:p:69-93

Note: DOI: 10.1257/jep.23.4.69
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References

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  1. Daniel G. Sullivan & Till von Wachter, 2006. "Mortality, mass-layoffs, and career outcomes: an analysis using administrative data," Working Paper Series WP-06-21, Federal Reserve Bank of Chicago.
  2. Henry S. Farber, 2008. "Employment Insecurity: The Decline in Worker-Firm Attachment in the United States," Working Papers 1068, Princeton University, Department of Economics, Industrial Relations Section..
  3. Henry S. Farber, 2005. "What do we know about Job Loss in the United States? Evidence from the Displaced Workers Survey, 1984-2004," Working Papers 877, Princeton University, Department of Economics, Industrial Relations Section..
  4. Marianne Bertrand, 1999. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," NBER Working Papers 6900, National Bureau of Economic Research, Inc.
  5. Marcus Eliason & Donald Storrie, 2006. "Lasting or Latent Scars? Swedish Evidence on the Long-Term Effects of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 831-856, October.
  6. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January.
  7. Till von Wachter & Jae Song & Joyce Manchester, 2008. "Long-Term Earnings Losses due to Job Separation During the 1982 Recession: An Analysis Using Longitudinal Administrative Data from 1974 to 2004," Discussion Papers 0708-16, Columbia University, Department of Economics.
  8. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  9. Henry S. Farber, 1997. "The Changing Face of Job Loss in the United States, 1981-1995," Working Papers 761, Princeton University, Department of Economics, Industrial Relations Section..
  10. Martin N. Baily & Eric J. Bartelsman & John Haltiwanger, 1994. "Downsizing and productivity growth: myth or reality?," Finance and Economics Discussion Series 94-7, Board of Governors of the Federal Reserve System (U.S.).
  11. Gary Charness & David I. Levine, 1999. "When are layoffs acceptable? Evidence from a quasi-experiment," Economics Working Papers 369, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  13. Dial, Jay & Murphy, Kevin J., 1995. "Incentives, downsizing, and value creation at General Dynamics," Journal of Financial Economics, Elsevier, vol. 37(3), pages 261-314, March.
  14. repec:fth:prinin:382 is not listed on IDEAS
  15. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
  16. Sewin Chan & Ann H. Stevens, 2004. "How Does Job Loss Affect the Timing of Retirement?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 0(1), pages 5.
  17. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  18. Hallock, Kevin F, 1998. "Layoffs, Top Executive Pay, and Firm Performance," American Economic Review, American Economic Association, vol. 88(4), pages 711-23, September.
  19. Martin Browning & Anne Moller Dano & Eskil Heinesen, 2006. "Job displacement and stress-related health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 15(10), pages 1061-1075.
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  22. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Parsons, Donald O., 2011. "Double-Sided Moral Hazard in Job Displacement Insurance Contracts," IZA Discussion Papers 6003, Institute for the Study of Labor (IZA).
  2. Bratsberg, Bernt & Fevang, Elisabeth & Røed, Knut, 2010. "Disability in the Welfare State: An Unemployment Problem in Disguise?," IZA Discussion Papers 4897, Institute for the Study of Labor (IZA).

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