This article provides theoretical and empirical analyses of a firing costs model with adverse selection. Our theory suggests that, as firing costs increase, firms increasingly prefer hiring employed workers, who are less likely to be lemons. Estimates of re-employment probabilities from the National Longitudinal Survey of Youth support this prediction. Unjust-dismissal provisions in U.S. states reduce the re-employment probabilities of unemployed workers relative to employed workers. Consistent with a lemons story, the relative effects of unjust-dismissal provisions on the unemployed are generally smaller for union workers and those who lost their previous jobs due to the end of a contract.
|Original language||English (US)|
|Number of pages||32|
|Journal||Journal of Labor Economics|
|State||Published - Jul 2004|
ASJC Scopus subject areas
- Industrial relations
- Economics and Econometrics