Research Examines Wrongful Discharge Laws and Company Performance
Storrs, CT (3/24/2008) - Should employment laws make it difficult for employers to fire their workers? A recent paper by Robert Bird, assistant professor of Business Law, and John Knopf, assistant professor of Finance, offers an answer.
“Scholars and policymakers have been debating for years whether legislating job security was bad for business,” Bird said. “We now know that giving employees too many protections increases the financial burden on companies that hire them.”
Knopf and Bird’s article, titled “Do Wrongful Discharge Laws Impair Firm Performance?”, canvassed over twenty years of wrongful discharge protections across the fifty states and compared them with the costs of banks operating in that state.
“We used a novel empirical method of matching widely available banking data with state employment law,” said Knopf. “No one has ever thought of combining the two before.”
The paper found that strong wrongful discharge protections for workers were significantly associated with increased salaries for employees. The authors believe that these costs increased a result of a firm’s unwillingness to discharge unproductive workers for fear of costly litigation.
“That’s not necessarily a good thing for workers,” Bird said. “Higher salaries mean that firms are less willing to hire and that means less jobs available for people who are unemployed or who are looking to switch.”
The article is scheduled for publication in the Journal of Law & Economics in May 2009.
PHOTO: Robert Bird, left, an assistant professor of business law, and John Knopf, an assistant professor of finance, have studied wrongful discharge laws. Photo by Frank Dahlmeyer
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