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Just-cause provisions, severance pay, and the efficiency wage hypothesis

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Author Info

  • Harvey S. James

    (Department of Economics, University of Hartford, West Hartford, CT, USA)

  • Derek M. Johnson

    (Department of Economics, University of Connecticut, U-63 Storrs, CT, USA)

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    Abstract

    A simple model of employment contracting is employed to examine the effectiveness of just-cause provisions in alleviating employer opportunism in two types of efficiency wage contracts-standard contracts, in which wages exceed the worker's marginal contribution, and deferred wages, which are paid after a period of tenure in the firm. It is argued that just-cause employment policies are necessary and sufficient to prevent employer opportunism when standard efficiency wages are utilized. However, just-cause policies are not sufficient to deter employer opportunism when employment contracts are of the delayed-payment type. In these contracts, other contractual provisions, such as severance provisions, are also necessary. Copyright © 2000 John Wiley & Sons, Ltd.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 21 (2000)
    Issue (Month): 2 ()
    Pages: 83-88

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    Handle: RePEc:wly:mgtdec:v:21:y:2000:i:2:p:83-88

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Jacob Mincer & Boyan Jovanovic, 1979. "Labor Mobility and Wages," NBER Working Papers 0357, National Bureau of Economic Research, Inc.
    2. George J. Borjas, 1978. "Job Mobility and Earnings Over the Life Cycle," NBER Working Papers 0233, National Bureau of Economic Research, Inc.
    3. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July.
    4. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 439-57, October.
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    Cited by:
    1. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.

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