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Just-cause provisions, severance pay, and the efficiency wage hypothesis

Author

Listed:
  • Harvey S. James

    (Department of Economics, University of Hartford, West Hartford, CT, USA)

  • Derek M. Johnson

    (Department of Economics, University of Connecticut, U-63 Storrs, CT, USA)

Abstract

A simple model of employment contracting is employed to examine the effectiveness of just-cause provisions in alleviating employer opportunism in two types of efficiency wage contracts-standard contracts, in which wages exceed the worker's marginal contribution, and deferred wages, which are paid after a period of tenure in the firm. It is argued that just-cause employment policies are necessary and sufficient to prevent employer opportunism when standard efficiency wages are utilized. However, just-cause policies are not sufficient to deter employer opportunism when employment contracts are of the delayed-payment type. In these contracts, other contractual provisions, such as severance provisions, are also necessary. Copyright © 2000 John Wiley & Sons, Ltd.

Suggested Citation

  • Harvey S. James & Derek M. Johnson, 2000. "Just-cause provisions, severance pay, and the efficiency wage hypothesis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 83-88.
  • Handle: RePEc:wly:mgtdec:v:21:y:2000:i:2:p:83-88
    DOI: 10.1002/1099-1468(200003)21:2<83::AID-MDE970>3.0.CO;2-X
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    References listed on IDEAS

    as
    1. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July.
    2. Jacob Mincer & Boyan Jovanovic, 1981. "Labor Mobility and Wages," NBER Chapters,in: Studies in Labor Markets, pages 21-64 National Bureau of Economic Research, Inc.
    3. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 439-457, October.
    4. George J. Borjas, 1978. "Job Mobility and Earnings Over the Life Cycle," NBER Working Papers 0233, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.

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