TY  - JOUR
AU  - MacLeod,W. Bentley
TI  - Great Expectations: Law, Employment Contracts, and Labor Market Performance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16048
PY  - 2010
Y2  - June 2010
UR  - http://www.nber.org/papers/w16048
L1  - http://www.nber.org/papers/w16048.pdf
N1  - Author contact info:
W. Bentley MacLeod
Department of Economics
Columbia University
420 West 118th Street, MC 3308
New York, NY 10027
Tel: 310-571-5083
Fax: 212/854-4782
E-Mail: bentley.macleod@columbia.edu
AB  - This chapter reviews the literature on employment and labor law. The goal of the review is to understand why every jurisdiction in the world has extensive employment law, particularly employment protection law, while most economic analysis of the law suggests that less employment protection would enhance welfare. The review has three parts. The first part discusses the structure of the common law and the evolution of employment protection law. The second part discusses the economic theory of contract. Finally, the empirical literature on employment and labor law is reviewed. I conclude that many aspects of employment law are consistent with the economic theory of contract - namely, that contracts are written and enforced to enhance ex ante match efficiency in the presence of asymmetric information and relationship specific investments. In contrast, empirical labor market research focuses upon ex post match efficiency in the face of an exogenous productivity shock. Hence, in order to understand the form and structure of existing employment law we need better empirical tools to assess the ex ante benefits of employment contracts.
ER  -