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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. Rosen, Sherwin, 2007. "Studies in Labor Markets," National Bureau of Economic Research Books, University of Chicago Press, number 9780226726304, December.
    2. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    3. 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.
    4. George J. Borjas, 1981. "Job Mobility and Earnings over the Life Cycle," ILR Review, Cornell University, ILR School, vol. 34(3), pages 365-376, April.
    5. 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.
    6. 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.
    7. Hutchens, Robert M, 1989. "Seniority, Wages and Productivity: A Turbulent Decade," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 49-64, Fall.
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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.
    2. Pfeifer, Christian, 2009. "An Intra-Firm Perspective on Wage Profiles and Employment of Older Workers with Special Reference to Human Capital and Deferred Compensation," Hannover Economic Papers (HEP) dp-413, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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