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Outsourcing at Will: Unjust Dismissal Doctrine and the Growth of Temporary Help Employment

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David H. Autor

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Abstract

The U.S. temporary help services (THS) industry grew at 11 percent annually between 1979 to 1995, five times more rapidly than non-farm employment. Contemporaneously, courts in 46 states adopted exceptions to the common law doctrine of employment at will that limit employers' discretion to terminate workers and opened them to litigation. This paper assesses whether the decline of employment at will and the growth of THS are causally related. To aid the analysis, the paper considers a simple model of employment outsourcing, the primary implication of which is that firms will respond to externally imposed firing costs by outsourcing positions requiring the least firm-specific skills rather than those with the highest expected termination costs. The empirical analysis indicates that one class of exception, the implied contractual right to ongoing employment, led to 14 to 22 percent excess temporary help growth in adopting states. Unjust dismissal doctrines did not significantly contribute to employment growth in other business service industries. Temporary help employment is closely correlated with union penetration, with states experiencing the least rapid decline in unionization undergoing substantially faster THS growth. The decline of employment at will explains as much as 20 percent of the growth of THS between 1973 to 1995 and accounts for 336,000 to 494,000 additional workers employed in THS on a daily basis as of 1999.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7557.

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Date of creation: Feb 2000
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Handle: RePEc:nbr:nberwo:7557

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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References listed on IDEAS
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(explanations, 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.)

  1. Michael Kvasnicka & Axel Werwatz, 2003. "On the Wages of Temporary Help Service Workers in Germany," Labor and Demography 0309004, EconWPA. [Downloadable!]
  2. Sainan Jin & Yukako Ono & Qinghua Zhang, 2007. "Demand volatility and the lag between the growth of temporary and permanent employment," Working Paper Series WP-07-19, Federal Reserve Bank of Chicago. [Downloadable!]
  3. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Daniel, Kirsten & Siebert, W. Stanley, 2004. "Does Employment Protection Reduce the Demand for Unskilled Labor?," IZA Discussion Papers 1290, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. John S. Heywood & W. Stanley Siebert & Xiangdong Wei, 2006. "Examining the Determinants of Agency Work: Do Family Friendly Practices Play a Role?," IZA Discussion Papers 2413, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Antoni, Manfred & Jahn, Elke J., 2006. "Do changes in regulation affect employment duration in temporary work agencies?," IAB Discussion Paper 200618, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
    Other versions:
  8. Tommaso Nannicini, 2004. "Temporary Workers: How Temporary Are They?," Economics Working Papers ECO2004/23, European University Institute. [Downloadable!]
  9. Yukako Ono & Alexei Zelenev, 2003. "Temporary help services and the volatility of industry output," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 15-28. [Downloadable!]
  10. Catalina Amuedo-Dorantes, 2005. "Work Contracts and Earnings Inequality: The Case of Chile," The Journal of Development Studies, Taylor and Francis Journals, vol. 41(4), pages 589-616, May. [Downloadable!] (restricted)
  11. David H. Autor, 2001. "Wiring the Labor Market," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 25-40, Winter. [Downloadable!] (restricted)
    Other versions:
  12. Andersson, Pernilla & Wadensjö, Eskil, 2004. "Other Forms of Employment: Temporary Employment Agencies and Self-Employment," IZA Discussion Papers 1166, Institute for the Study of Labor (IZA). [Downloadable!]
  13. Susan N. Houseman & Arne L. Kalleberg & George A. Erickcek, 2001. "The Role of Temporary Help Employment in Tight Labor Markets," Staff Working Papers 01-73, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  14. Lawrence Katz & Alan Krueger, 1999. "The High-pressure U.S. Labor Market of the 1990s," Working Papers 795, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  15. Andrea Ichino & Fabrizia Mealli & Tommaso Nannicini, 2005. "Temporary Work Agencies in Italy: A Springboard Toward Permanent Employment?," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(1), pages 1-27, September. [Downloadable!]
  16. Daniel S. Hamermesh, 2000. "12 Million Salaried Workers Are Missing," NBER Working Papers 8016, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Boockmann, Bernhard & Hagen, Tobias, 2001. "The use of flexible working contracts in West Germany : evidence from an establishment panel," ZEW Discussion Papers 01-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  18. Elisabetta Magnani, 2006. "Technological diffusion, the diffusion of skill and the growth of outsourcing in US manufacturing," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 15(7), pages 617-647, October. [Downloadable!] (restricted)
  19. Susan N. Houseman, 2000. "Why Employers Use Flexible Staffing Arrangements: Evidence from an Establishment Survey," Staff Working Papers 01-67, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  20. Andersson, Pernilla & Wadensjö, Eskil, 2004. "Temporary Employment Agencies: A Route for Immigrants to Enter the Labour Market?," IZA Discussion Papers 1090, Institute for the Study of Labor (IZA). [Downloadable!]
  21. Adriana Kugler, 2004. "The Effect of Job Security Regulations on Labor Market Flexibility: Evidence from the Colombian Labor Market Reform," NBER Working Papers 10215, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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