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Do Wrongful-Discharge Laws Impair Firm Performance?

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  • Robert C. Bird
  • John D. Knopf

Abstract

We estimate the effects on firm costs and profitability of wrongful-discharge protections adopted by U.S. state courts during 1977-99. By examining the data of approximately 18,000 commercial banks, after controlling for local state economic conditions, we find evidence of a relationship between the adoption of the implied contract exception and the increase in labor expenses. In addition, adoption of the implied contract exception is found to have a significant and negative effect on overall profitability. The study corroborates previous findings that wrongful-discharge laws place increased costs on employers. (c) 2009 by The University of Chicago. All rights reserved.

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  • Robert C. Bird & John D. Knopf, 2009. "Do Wrongful-Discharge Laws Impair Firm Performance?," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 197-222, May.
  • Handle: RePEc:ucp:jlawec:v:52:y:2009:i:2:p:197-222
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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. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    3. Brian A. Jacob, 2010. "The Effect of Employment Protection on Worker Effort: Evidence from Public Schooling," NBER Working Papers 15655, National Bureau of Economic Research, Inc.
    4. Christine Lücke & Andreas Knabe, 2018. "How Much Does Others' Protection Matter? Employment Protection, Future Labour Market Prospects and Well-Being," CESifo Working Paper Series 6936, CESifo Group Munich.
    5. Bruce G. Carruthers & Naomi R. Lamoreaux, 2016. "Regulatory Races: The Effects of Jurisdictional Competition on Regulatory Standards," Journal of Economic Literature, American Economic Association, vol. 54(1), pages 52-97, March.
    6. Brian A. Jacob, 2013. "The Effect of Employment Protection on Teacher Effort," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 727-761.
    7. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    8. Per Skedinger, 2010. "Employment Protection Legislation," Books, Edward Elgar Publishing, number 13686.
    9. Long, Cheryl & Yang, Jin, 2016. "How do firms respond to minimum wage regulation in China? Evidence from Chinese private firms," China Economic Review, Elsevier, vol. 38(C), pages 267-284.
    10. Robert Bird & John Knopf, 2015. "The Impact of Local Knowledge on Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 1-20, August.
    11. 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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