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Great Expectations: Law, Employment Contracts, and Labor Market Performance

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  • W. Bentley MacLeod

Abstract

This chapter reviews the literature on employment and labor law. The goal of the review is to understand why every jurisdiction in the world has extensive employment law, particularly employment protection law, while most economic analysis of the law suggests that less employment protection would enhance welfare. The review has three parts. The first part discusses the structure of the common law and the evolution of employment protection law. The second part discusses the economic theory of contract. Finally, the empirical literature on employment and labor law is reviewed. I conclude that many aspects of employment law are consistent with the economic theory of contract - namely, that contracts are written and enforced to enhance ex ante match efficiency in the presence of asymmetric information and relationship specific investments. In contrast, empirical labor market research focuses upon ex post match efficiency in the face of an exogenous productivity shock. Hence, in order to understand the form and structure of existing employment law we need better empirical tools to assess the ex ante benefits of employment contracts.

Suggested Citation

  • W. Bentley MacLeod, 2010. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," NBER Working Papers 16048, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16048
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    Cited by:

    1. Kvaløy, Ola & Olsen, Trond E., 2015. "The tenuous relationship between effort and performance pay," Journal of Public Economics, Elsevier, vol. 121(C), pages 32-39.
    2. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    3. Hadi Esfahani & Roksana Bahramitash & Bin Lin, 2016. "Gender and Labour Allocation: the Role of Institutions and Policies in the Allocation of Female and Male Labor," Working Papers 998, Economic Research Forum, revised May 2016.
    4. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.

    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • J8 - Labor and Demographic Economics - - Labor Standards
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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