On the Economic Effects of Unenforced Regulation in Employment Law

32 Pages Posted: 24 Dec 2014 Last revised: 19 Feb 2016

See all articles by Alon Harel

Alon Harel

Hebrew University of Jerusalem - Faculty of Law

Yuval Procaccia

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law

Ilana Ritov

Hebrew University of Jerusalem - School of Education

Date Written: December 23, 2015

Abstract

Mandatory restrictions in employment law, designed to promote the welfare of workers, are debated fiercely. Proponents argue that they protect workers. Opponents believe that they spawn inefficiency and harm workers. Yet all agree that their welfare implications depend on their degree of enforcement.

This Article challenges the conviction that the welfare implications of such restrictions depend on enforcement. We show experimentally that unenforced restrictions cause workers' reservation wages to rise, i.e., workers charge higher wages when offered contracts that violate such restrictions. This observation is important to both proponents and opponents of such restrictions. We establish this claim experimentally by measuring the effects of unenforced restrictions on workers' reservation wages. Then we investigate several hypotheses as to why these effects are generated. Last, we point out that our findings have important implications in other contexts of contractual regulation, such as in the domain of consumer protection.

Keywords: Mandatory Regulation, Employment Law, Law Enforcement, Endowment Effect, Experimental Law and Economics, Economic Analysis, Working Hours Restrictions.

JEL Classification: A12, A13, D33, J00, J02, J03, K12, K14, K19, K31, K42

Suggested Citation

Harel, Alon and Procaccia, Yuval and Ritov, Ilana, On the Economic Effects of Unenforced Regulation in Employment Law (December 23, 2015). Available at SSRN: https://ssrn.com/abstract=2542058 or http://dx.doi.org/10.2139/ssrn.2542058

Alon Harel

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel
97 22 588 2582 (Phone)
97 22 582 3042 (Fax)

Yuval Procaccia (Contact Author)

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law ( email )

P.O. Box 167
Herzliya, 46150
Israel

Ilana Ritov

Hebrew University of Jerusalem - School of Education ( email )

Mt. Scopus
Jerusalem, 91905
Israel
+972 2 652 9929 (Phone)

HOME PAGE: http://pluto.huji.ac.il/~msiritov/ilana_ritov.htm

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