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Can Wrongful Discharge Law Enhance Employment?


  • W. Bentley MacLeod
  • Voraprapa Nakavachara


The extent of government in private contractual relationships is a vexing public policy issue. This article explores, both theoretically and empirically, the degree to which such intervention may enhance employment. Economists traditionally have held that interventions such as wrongful discharge protections simply undo the original intent of the parties to an employment contract. We find that both good faith as well as implied contract exceptions to employment-at-will may enhance employment, particularly in occupations characterised by high levels of investment and skill. This suggests that under the appropriate conditions, labour law may enhance the operation of a competitive market. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • W. Bentley MacLeod & Voraprapa Nakavachara, 2007. "Can Wrongful Discharge Law Enhance Employment?," Economic Journal, Royal Economic Society, vol. 117(521), pages 218-278, June.
  • Handle: RePEc:ecj:econjl:v:117:y:2007:i:521:p:218-278

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    References listed on IDEAS

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    Cited by:

    1. Filippo Belloc, 2015. "Employee Representation Legislations and Innovation," Department of Economics University of Siena 719, Department of Economics, University of Siena.
    2. Barceló, Cristina & Villanueva, Ernesto, 2016. "The response of household wealth to the risk of job loss: Evidence from differences in severance payments," Labour Economics, Elsevier, vol. 39(C), pages 35-54.
    3. Elliott Ash, W. Bentley MacLeod, . "Intrinsic Motivation in Public Service: Theory and Evidence from State Supreme Courts," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    4. Deffains, Bruno & Gabuthy, Yannick & Lambert, Eve-Angéline, 2010. "Labour disputes, investment decisions and the judiciary," Labour Economics, Elsevier, vol. 17(2), pages 424-433, April.
    5. Lawrence M. Kahn, 2012. "Labor market policy: A comparative view on the costs and benefits of labor market flexibility," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 31(1), pages 94-110, December.
    6. Juan J. Dolado & Salvador Ortigueira & Rodolfo Stucchi, 2016. "Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(4), pages 421-459, November.
    7. Olsson, Martin, 2009. "Employment protection and sickness absence," Labour Economics, Elsevier, vol. 16(2), pages 208-214, April.
    8. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    9. repec:spr:jlabrs:v:50:y:2017:i:1:d:10.1007_s12651-017-0222-8 is not listed on IDEAS
    10. Petar Stankov, 2010. "Deregulation, Economic Growth and Growth Acceleration," CERGE-EI Working Papers wp424, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Kahn, Lawrence M., 2012. "Temporary jobs and job search effort in Europe," Labour Economics, Elsevier, vol. 19(1), pages 113-128.
    12. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2013. "Labor Laws and Innovation," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 997-1037.

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