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Involuntary Terminations under Explicit and Implicit Employment Contracts

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  • James L. Medoff
  • Katharine G. Abraham

Abstract

This study investigates where and when last-in-first-out permanent layoff policies seem to go hand in hand with compensation policies under which the net value of senior workers appears to be less than that of their junior peers. The investigation relies upon both the approximately 260 usable responses to a survey we mailed out to a sample of U.S. firms and microdata from the computerized personnel files of a major U.S. corporation. Our findings for U.S. companies outside of agriculture and construction lead us to the following three conclusions: (1) For most employees, it appears that protection against job loss grows with seniority, although net value to the firm does not.(2) While a very sizeable percentage of nonunion workers may be covered by implicit employment contracts which give more protection against termination to those with more seniority, a much higher percentage of workers covered by collective bargaining agreements seem to enjoy such protection; and (3) The job protection afforded senior nonunion personnel, especially exempt employees, appears to be less strong than that provided to union members.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0634.

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Date of creation: Feb 1981
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Handle: RePEc:nbr:nberwo:0634

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References

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  1. Dan H. Mater, 1941. "A Statistical Study of the Effect of Seniority Upon Employee Efficiency," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 14, pages 169.
  2. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 95(4), pages 703-36, December.
  3. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, National Bureau of Economic Research, Inc, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  4. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
  5. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  6. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 1-18, January.
  7. Summers, Anita A & Wolfe, Barbara L, 1977. "Do Schools Make a Difference?," American Economic Review, American Economic Association, American Economic Association, vol. 67(4), pages 639-52, September.
  8. Parsons, Donald O, 1972. "Specific Human Capital: An Application to Quit Rates and Layoff Rates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(6), pages 1120-43, Nov.-Dec..
  9. Medoff, James L, 1979. "Layoffs and Alternatives under Trade Unions in U.S. Manufacturing," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 380-95, June.
  10. Katharine G. Abraham & James L. Medoff, 1983. "Years of Service and Probability of Promotion," NBER Working Papers 1191, National Bureau of Economic Research, Inc.
  11. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
  12. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1261-84, December.
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Cited by:
  1. Peter Kuhn, 1982. "Malfeasance in Long Term Employment Contracts: A New General Model with an Application to Unionism," NBER Working Papers 1045, National Bureau of Economic Research, Inc.

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