The Costs of Wrongful-Discharge Laws

Abstract

We estimate the effects on employment and wages of wrongful-discharge protections adopted by U.S. state courts during the last three decades. We find robust evidence that one wrongful-discharge doctrine, the implied-contract exception, reduced state employment rates by 0.8 to 1.6 percent. The initial impact is largest for female, younger, and less-educated workers – those who change jobs frequently – while the longer-term effect is greater for older and more-educated workers – those most likely to litigate. By contrast, we find no robust employment or wage effects of two other widely recognized wrongful-discharge laws: the public-policy and good-faith exceptions.