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

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

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)

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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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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Jacob Mincer & Boyan Jovanovic, 1982. "Labor Mobility and Wages," NBER Working Papers 0357, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Jacob Mincer & Boyan Jovanovic, 1981. "Labor Mobility and Wages," NBER Chapters, in: Studies in Labor Markets, pages 21-64 National Bureau of Economic Research, Inc. [Downloadable!]
George J. Borjas, 1978. "Job Mobility and Earnings Over the Life Cycle," NBER Working Papers 0233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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