Unemployment Duration under Wrongful Discharge Law


July 2004


Nicholson, Kristin A.
North, Charles Mark, 1964-

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In the 1970’s and 1980’s, courts in most U.S. states adopted some type of common law wrongful discharge cause of action. The various causes of action for wrongful discharge are generally placed into three categories: public policy, implied contract, and good faith. This paper examines the effects of state-level wrongful discharge actions on the duration of unemployment spells. We use individual data from the March supplements to the Current Population Survey for 1979- 2000, refining the sample in various ways to correct for shortcomings inherent in CPS data on unemployment spell duration. Results indicate that judicial adoption of wrongful discharge law lengthened the duration of unemployment spells. For the broadest sample of workers, all three types of wrongful discharge law lengthened unemployment spells. However, when the analysis is limited to workers who can be matched across their two years of participation in the survey, only the implied contract action has a significant effect. In addition, we look for the presence of differential insider/outsider effects, as have been found in studies of European employment protection legislation, but we find only limited evidence of such effects.



Unemployment Duration, Wrongful Discharge, Employment-at-will, JEL Classification: J64, JEL Classification: K31