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Great Expectations: Law, Employment Contracts, and Labor Market Performance

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  • MacLeod, W. Bentley

    (Princeton University)

Abstract
This chapter reviews the literature on employment and labor law. The goal of the review is to understand why every jurisdiction in the world has extensive employment law, particularly employment protection law, while most economic analysis of the law suggests that less employment protection would enhance welfare. The review has three parts. The first part discusses the structure of the common law and the evolution of employment protection law. The second part discusses the economic theory of contract. Finally, the empirical literature on employment and labor law is reviewed. I conclude that many aspects of employment law are consistent with the economic theory of contract – namely, that contracts are written and enforced to enhance ex ante match efficiency in the presence of asymmetric information and relationship specific investments. In contrast, empirical labor market research focuses upon ex post match efficiency in the face of an exogenous productivity shock. Hence, in order to understand the form and structure of existing employment law we need better empirical tools to assess the ex ante benefits of employment contracts.

Suggested Citation

  • MacLeod, W. Bentley, 2010. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," IZA Discussion Papers 5357, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5357
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    Cited by:

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    2. Martins, Pedro S. & Saraiva, Joana, 2020. "Assessing the legal value added of collective bargaining agreements," International Review of Law and Economics, Elsevier, vol. 62(C).
    3. Campos, Nauro F. & Nugent, Jeffrey B., 2012. "The Dynamics of the Regulation of Labor in Developing and Developed Countries since 1960," IZA Discussion Papers 6881, Institute of Labor Economics (IZA).
    4. Henry Hyatt & James Spletzer, 2013. "The recent decline in employment dynamics," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-21, December.
    5. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 84-111.
    6. Hadi Esfahani & Roksana Bahramitash & Bin Lin, 2016. "Gender and Labour Allocation: the Role of Institutions and Policies in the Allocation of Female and Male Labor," Working Papers 998, Economic Research Forum, revised May 2016.
    7. Kvaløy, Ola & Olsen, Trond E., 2015. "The tenuous relationship between effort and performance pay," Journal of Public Economics, Elsevier, vol. 121(C), pages 32-39.
    8. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
    9. Jaivir Singh & Deb Kusum Das & Prateek Kukreja & Kumar Abhishek, 2017. "Law, skills and the creation of jobs as ‘contract’ work in India: exploring survey data to make inferences for labour law reform," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 60(4), pages 549-570, December.
    10. Alberto Chong & Angelo Cozzubo, 2019. "Perverse Incentives? Labor Market Regulation and Performance in the Public Sector," Southern Economic Journal, John Wiley & Sons, vol. 86(1), pages 271-285, July.
    11. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    12. Christopher Jepsen & Lisa Jepsen & Trevor Draisey & Josh Mahoney, 2021. "Race and National Football League Player Salaries After Controlling for Fantasy Statistics and Arrests," Journal of Sports Economics, , vol. 22(4), pages 359-386, May.
    13. Peng-Ju Su, Alice, 2020. "Information advantage and minimum wage," Information Economics and Policy, Elsevier, vol. 50(C).
    14. Kurose, Kazuhiro, 2021. "Models of structural change and Kaldor’s facts: Critical survey from the Cambridge Keynesian perspective," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 267-277.

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    More about this item

    Keywords

    employment contract; employment contract; labor law; employment law; law and economics;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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