Job Insecurity Isn't Always Efficient

Federal Trade Commission, Bureau of Economics, Working Paper No. 305

34 Pages Posted: 18 Sep 2010

See all articles by David J. Balan

David J. Balan

Econ One Research, Inc.

Dan Hanner

Government of the United States of America - Federal Trade Commission

Date Written: September 16, 2010

Abstract

Workers value job security. If at least some workers value it enough, then it is efficient for at least some firms to adopt policies in which they commit (implicitly or explicitly) not to dismiss employees except for “just-cause,” as opposed to policies in which employers are free to dismiss employees “at-will.” In this paper, we develop a simple model in which the equilibrium distribution of workers be-tween just-cause firms and at-will firms is not generally efficient: there can be inefficiently many workers in just-cause firms or inefficiently few. If there are inefficiently few, then a tax or even a ban on at-will firms can be welfare-improving.

Keywords: Job Security, Shirking, Dual Labor Markets

JEL Classification: J28, J53, J63, J81, K31

Suggested Citation

Balan, David J. and Hanner, Dan, Job Insecurity Isn't Always Efficient (September 16, 2010). Federal Trade Commission, Bureau of Economics, Working Paper No. 305, Available at SSRN: https://ssrn.com/abstract=1678128

David J. Balan (Contact Author)

Econ One Research, Inc. ( email )

United States
(202) 422-8903 (Phone)

Dan Hanner

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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