JUST, UNJUST, AND JUST-CAUSE DISMISSALS

Job security or just-cause employment laws have been studied in severa l moral hazard or shirking models of efficiency wages. Employment rise s in some models, falls in others. Curiously, these models usually ass ume either that Ilo non-shirking workers are unjustly fired or that no shirking workers are justly fired. This paper allows for both types o f dismissals. Because the just-cause law reduces the number of unjust dismissals, worker welfare rises. Because tile number of just dismissa ls also falls, productivity declines. Overall, the just-cause laws lea d to greater worker welfare with no drop in profits or output.