Just-cause provisions, severance pay, and the efficiency wage hypothesis
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.
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Volume (Year): 21 (2000)
Issue (Month): 2 ()
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References listed on IDEAS
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- Jacob Mincer & Boyan Jovanovic, 1979.
"Labor Mobility and Wages,"
NBER Working Papers
0357, National Bureau of Economic Research, Inc.
- 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 439-57, October.
- 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.
- 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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