Great Expectations: Law, Employment Contracts, and Labor Market Performance
AbstractThis chapter reviews the literature on employment and labor law. The goal of the review is to understand why every jurisdiction in the world has extensive employment law, particularly employment protection law, while most economic analysis of the law suggests that less employment protection would enhance welfare. The review has three parts. The first part discusses the structure of the common law and the evolution of employment protection law. The second part discusses the economic theory of contract. Finally, the empirical literature on employment and labor law is reviewed. I conclude that many aspects of employment law are consistent with the economic theory of contract – namely, that contracts are written and enforced to enhance ex ante match efficiency in the presence of asymmetric information and relationship specific investments. In contrast, empirical labor market research focuses upon ex post match efficiency in the face of an exogenous productivity shock. Hence, in order to understand the form and structure of existing employment law we need better empirical tools to assess the ex ante benefits of employment contracts.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5357.
Length: 100 pages
Date of creation: Dec 2010
Date of revision:
Publication status: published in: O. Ashenfelter and D. Card (eds.), Handbook of Labor Economics, Vol. 4B, Chapter 18, Amsterdam: Elsevier, 2011
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Other versions of this item:
- MacLeod, W. Bentley, 2011. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," Handbook of Labor Economics, Elsevier, Elsevier.
- W. Bentley MacLeod, 2010. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," NBER Working Papers 16048, National Bureau of Economic Research, Inc.
- J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-23 (All new papers)
- NEP-BEC-2010-12-23 (Business Economics)
- NEP-CTA-2010-12-23 (Contract Theory & Applications)
- NEP-HPE-2010-12-23 (History & Philosophy of Economics)
- NEP-LAB-2010-12-23 (Labour Economics)
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- Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
- Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, Elsevier, vol. 19(1), pages 9-17.
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