Involuntary Terminations under Explicit and Implicit Employment Contracts

This study investigates where and when last-in-first-out permanent layoff policies seem to go hand in hand with compensation policies under which the net value of senior workers appears to be less than that of their junior peers. The investigation relies upon both the approximately 260 usable responses to a survey we mailed out to a sample of U.S. firms and microdata from the computerized personnel files of a major U.S. corporation. Our findings for U.S. companies outside of agriculture and construction lead us to the following three conclusions: (1) For most employees, it appears that protection against job loss grows with seniority, although net value to the firm does not.(2) While a very sizeable percentage of nonunion workers may be covered by implicit employment contracts which give more protection against termination to those with more seniority, a much higher percentage of workers covered by collective bargaining agreements seem to enjoy such protection; and (3) The job protection afforded senior nonunion personnel, especially exempt employees, appears to be less strong than that provided to union members.