Layoffs and litigation

We study a possible link between two recent U.S. labor market trends: incre ased wrongful termination litigation and more frequent mass layoffs. We arg ue that if workers are more likely to sue when fired than when dismissed as part of a layoff then increases in the expected costs to firms of such sui ts should induce substitution toward layoffs and away from individual firin gs. Our empirical analysis supports this assertion, showing that shortly af ter the passage of the Civil Rights Act of 1991, the methods of displacemen t changed differently by race but changes to the overall level of displacem ent were consistent across races.