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Job Loss and the Fraying of the Implicit Employment Contract

  • Kevin F. Hallock

Most workers have one employment contract that is explicit and another one that is implicit. The explicit employment contract specifies working hours, compensation, and job tasks. The implicit contract involves expectations about the extent to which the employment relationship is likely to continue over time. Will the firms will seek to avoid mass layoffs unless or until absolutely necessary? Will firms cushion the wages and compensation of employees to some extent from broad swings in the economy? Will employees show some degree of loyalty to the firm? This paper will argue that, along a number of dimensions, the nature of the worker-firm employment relationship may have changed substantially in recent years -- a group of changes that as a whole have negatively affected the lives of workers and produced modest, if any, benefits for firms. If employers have become less involved with cushioning the blow of unemployment and avoiding layoffs where possible, then public policy might have a role to play in spreading the burden of a down labor market so that the burden is not borne so heavily by those who lose their jobs entirely.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.4.69
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 23 (2009)
Issue (Month): 4 (Fall)
Pages: 69-93

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Handle: RePEc:aea:jecper:v:23:y:2009:i:4:p:69-93
Note: DOI: 10.1257/jep.23.4.69
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  1. Sewin Chan & Ann Huff Stevens, 2002. "How Does Job Loss Affect the Timing of Retirement?," NBER Working Papers 8780, National Bureau of Economic Research, Inc.
  2. Martin Browning & Anne Moller Dano & Eskil Heinesen, 2006. "Job displacement and stress-related health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 15(10), pages 1061-1075.
  3. Baily, Martin Neil & Bartelsman, Eric J & Haltiwanger, John, 1996. " Downsizing and Productivity Growth: Myth or Reality?," Small Business Economics, Springer, vol. 8(4), pages 259-78, August.
  4. Marianne Bertrand, 1999. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," NBER Working Papers 6900, National Bureau of Economic Research, Inc.
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  6. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
  7. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  8. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  9. Marcus Eliason & Donald Storrie, 2006. "Lasting or Latent Scars? Swedish Evidence on the Long-Term Effects of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 831-856, October.
  10. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  11. Daniel G. Sullivan & Till von Wachter, 2006. "Mortality, mass-layoffs, and career outcomes: an analysis using administrative data," Working Paper Series WP-06-21, Federal Reserve Bank of Chicago.
  12. Hallock, Kevin F, 1998. "Layoffs, Top Executive Pay, and Firm Performance," American Economic Review, American Economic Association, vol. 88(4), pages 711-23, September.
  13. Dial, Jay & Murphy, Kevin J., 1995. "Incentives, downsizing, and value creation at General Dynamics," Journal of Financial Economics, Elsevier, vol. 37(3), pages 261-314, March.
  14. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc.
  15. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January.
  16. Kenneth A. Couch & Dana W. Placzek, 2010. "Earnings Losses of Displaced Workers Revisited," American Economic Review, American Economic Association, vol. 100(1), pages 572-89, March.
  17. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
  18. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
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