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Exceptions to Employment at Will: Raising Firing Costs or Enforcing Life-Cycle Contracts?

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  • Max Schanzenbach

Abstract

The common law doctrine of employment at will holds that, unless specified otherwise, the employment relationship can be terminated for any reason. Beginning in the mid-1970s, many state courts became willing to find exceptions to this doctrine. A possible benefit of this new approach is that it provides a third-party enforcement mechanism to implicit labor contracts. This article uses two large micro data sets on employee tenure and wages to evaluate the impact of exceptions to employment at will. Although the results suggest that exceptions to employment at will affected labor markets, there is little evidence that exceptions helped enforce implicit contracts. Copyright 2003, Oxford University Press.

Suggested Citation

  • Max Schanzenbach, 2003. "Exceptions to Employment at Will: Raising Firing Costs or Enforcing Life-Cycle Contracts?," American Law and Economics Review, Oxford University Press, vol. 5(2), pages 470-504, August.
  • Handle: RePEc:oup:amlawe:v:5:y:2003:i:2:p:470-504
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    References listed on IDEAS

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    Cited by:

    1. William Kerr & Adriana Kugler & David Autor, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Working Papers 07-04, Center for Economic Studies, U.S. Census Bureau.
    2. MacLeod, W. Bentley & Nakavachara, Voraprapa, 2006. "Legal Default Rules: The Case of Wrongful Discharge Laws," IZA Discussion Papers 1970, Institute for the Study of Labor (IZA).
    3. Arruñada Benito & Andonova Veneta, 2008. "Judges' Cognition and Market Order," Review of Law & Economics, De Gruyter, vol. 4(2), pages 665-692, December.
    4. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2014. "Wrongful Discharge Laws and Innovation," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 301-346, January.

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