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American Law and Economics Review V5 N2 2003 (470-504)
© 2003 American Law and Economics Association

Article

Exceptions to Employment at Will: Raising Firing Costs or Enforcing Life-Cycle Contracts?

Max Schanzenbach

Northwestern University School of Law

Send correspondence to: Max Schanzenbach, Northwestern University School of Law, 357 East Chicago Ave., Chicago, IL 60611; E-mail: mschanz{at}aya.yale.edu.

Abstract

The common law doctrine of employment at will holds that, unless specified otherwise, the employment relationship can be terminated for any reason. Beginning in the mid-1970s, many state courts became willing to find exceptions to this doctrine. A possible benefit of this new approach is that it provides a third-party enforcement mechanism to implicit labor contracts. This article uses two large micro data sets on employee tenure and wages to evaluate the impact of exceptions to employment at will. Although the results suggest that exceptions to employment at will affected labor markets, there is little evidence that exceptions helped enforce implicit contracts.


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