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http://ssrn.com/abstract=355861
 
 

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The Costs of Wrongful-Discharge Laws


David Autor


Massachusetts Institute of Technology (MIT) - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

John J. Donohue III


Stanford Law School; National Bureau of Economic Research (NBER)

Stewart J. Schwab


Cornell Law School

November 18, 2002

MIT Dept. of Econ. Working Paper No. 02-41; Stanford Law & Econ. Olin Working Paper No. 243; Stanford Law School, Public Law Research Paper No. 49

Abstract:     
We estimate the effects on employment and wages of wrongful-discharge protections in the United States. Over the last three decades, most U.S. state courts have adopted one or more common law wrongful-discharge doctrines that limit employers' discretion to terminate workers at-will. Using this cross-state variation with a difference-in-difference framework, we find robust evidence of a modest negative impact (-0.8 to -1.6 percentage points) of one wrongful-discharge doctrine, the implied-contract exception, on employment to population rates in state labor markets. The short-term impact is most pronounced for female, younger, and less-skilled workers, while the longer term costs appear to be borne by older and more-educated workers - those most likely to litigate under this doctrine. We find no robust employment or wage effects of two other widely recognized wrongful-discharge laws: the public-policy and good-faith exceptions. Published findings in the literature range from no effect to very large negative effects. We re-analyze the two leading studies and find the discrepancies can be explained by methodological shortcomings in the one case and limitations in the coding of key court decisions in the other.

Number of Pages in PDF File: 59

Keywords: Employment Protection, Wrongful Discharge, Unjust Dismissal, Employment at Will, Labor Law, Instrumental Variables

JEL Classification: E24, J23, J32, J38, J83, K12, K31

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Date posted: November 29, 2002  

Suggested Citation

Autor, David and Donohue, John J. and Schwab, Stewart J., The Costs of Wrongful-Discharge Laws (November 18, 2002). MIT Dept. of Econ. Working Paper No. 02-41; Stanford Law & Econ. Olin Working Paper No. 243; Stanford Law School, Public Law Research Paper No. 49. Available at SSRN: http://ssrn.com/abstract=355861 or http://dx.doi.org/10.2139/ssrn.355861

Contact Information

David Autor (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-371
Cambridge, MA 02142-1347
United States
617-258-7698 (Phone)
617-253-1330 (Fax)
HOME PAGE: http://web.mit.edu/dautor/www
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
John J. Donohue III
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-575-7166 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stewart Jon Schwab
Cornell Law School ( email )
Myron Taylor Hall
#108
Ithaca, NY 14853
United States
607.255.8584 (Phone)
607-255-7193 (Fax)
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