Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World
Cornell Law Review, Volume 83, No. 1, 1997.
Posted: 22 Jul 1997
This Article presents empirical evidence on an issue at the heart of the academic controversy over the at-will rule -- namely, whether employees have sufficient information to effectively negotiate issues of job security. Using a written survey to collect data from several hundred workers, the study documents a widespread misunderstanding of the basic default rule of employment at will. The results indicate that workers consistently overestimate their legal rights, with overwhelming majorities (as high as 89%) believing that they are legally protected against arbitrary and unjust discharges when in fact they can be dismissed at will.These findings directly contradict a crucial assumption made by Richard Epstein and other defenders of the at-will rule: the assumption that both employers and employees understand the grounds on which they contract. One of the chief virtues of the at-will rule, according to its defenders, is that it is merely a default rule; the parties remain free to contract around it. If, however, workers are unaware of the legal default rule, then their failure to contract for greater job security can no longer be presumed to represent their true preferences. The presence of a significant information failure of this sort casts doubt on the ability of workers to protect their interests, suggesting a breakdown in the bargaining process. Thus, these findings undermine the traditional economic argument that the market can be relied upon to produce an efficient outcome when it comes to job security terms.
JEL Classification: K31
Suggested Citation: Suggested Citation