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Just-Cause Employment Policies in the Presence of Worker Adverse Selection
David I. Levine
Journal of Labor Economics
Vol. 9, No. 3 (Jul., 1991), pp. 294-305
Published by: The University of Chicago Press on behalf of the Society of Labor Economists and the NORC at the University of Chicago
Stable URL: http://www.jstor.org/stable/2535146
Page Count: 12
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The free market may not lead to the efficient level of just-cause employment protection if workers are heterogeneous. Any firm that switches to just cause will attract a disproportionate share of workers that provide low effort yet are difficult to dismiss with cause. Thus, there is an externality concerning each firm's just-cause policy. If all firms had just-cause policies, then the efficiency gains of just cause might outweigh the burden of the undesirable workers. Nevertheless, no single firm may find it in its interest to switch to just cause. It is possible for laws that require just cause to increase efficiency.
Journal of Labor Economics © 1991 The University of Chicago Press