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Exceptions to Employment at Will: Raising Firing Costs or Enforcing Life-Cycle Contracts?

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  • Max Schanzenbach

Abstract

The common law doctrine of employment at will holds that, unless specified otherwise, the employment relationship can be terminated for any reason. Beginning in the mid-1970s, many state courts became willing to find exceptions to this doctrine. A possible benefit of this new approach is that it provides a third-party enforcement mechanism to implicit labor contracts. This article uses two large micro data sets on employee tenure and wages to evaluate the impact of exceptions to employment at will. Although the results suggest that exceptions to employment at will affected labor markets, there is little evidence that exceptions helped enforce implicit contracts. Copyright 2003, Oxford University Press.

Suggested Citation

  • Max Schanzenbach, 2003. "Exceptions to Employment at Will: Raising Firing Costs or Enforcing Life-Cycle Contracts?," American Law and Economics Review, American Law and Economics Association, vol. 5(2), pages 470-504, August.
    • Handle: RePEc:oup:amlawe:v:5:y:2003:i:2:p:470-504
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    Cited by:

    1. Bradley T. Ewing & Charles M. North & Beck A. Taylor, 2005. "The Employment Effects of a “Good Cause†Discharge Standard in Montana," ILR Review, Cornell University, ILR School, vol. 59(1), pages 17-33, October.
    2. Godsell, David & Huang, Kelly & Lao, Brent, 2023. "Managers’ rank & file employee coordination costs and real activities manipulation," Accounting, Organizations and Society, Elsevier, vol. 107(C).
    3. William Kerr & Adriana Kugler & David Autor, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Working Papers 07-04, Center for Economic Studies, U.S. Census Bureau.
    4. Masaki Nakabayashi, 2018. "From the substance to the shadow: the role of the court in Japanese labour markets," Economic History Review, Economic History Society, vol. 71(1), pages 267-289, February.
    5. MacLeod, W. Bentley & Nakavachara, Voraprapa, 2006. "Legal Default Rules: The Case of Wrongful Discharge Laws," IZA Discussion Papers 1970, Institute of Labor Economics (IZA).
    6. Arruñada Benito & Andonova Veneta, 2008. "Judges' Cognition and Market Order," Review of Law & Economics, De Gruyter, vol. 4(2), pages 665-692, December.
    7. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2014. "Wrongful Discharge Laws and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 301-346, January.
    8. Robert C. Bird & John D. Knopf, 2009. "Do Wrongful-Discharge Laws Impair Firm Performance?," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 197-222, May.

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