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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16048.
Date of creation: Jun 2010
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Publication status: published as Great Expectations: Law, Employment Contracts, and Labor Market Per- formance, in Handbook of Labor Economics, Vol 4, edited by O. Ashenfel- ter and D. Card, 2011, pp 1591-1696.
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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.
- MacLeod, W. Bentley, 2010. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," IZA Discussion Papers 5357, Institute for the Study of Labor (IZA).
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
- J8 - Labor and Demographic Economics - - Labor Standards
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
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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, vol. 19(1), pages 9-17.
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