Employment-At-Will Exceptions and jobless recovery

Abstract

This paper studies the effects on jobless recovery of diminishing the power of an employer to fire an employee through Employment-At-Will Exceptions (EWEs). I use dynamic panel regressions with quarterly data ranging from 1976 to 2010 for the 50 states in the U.S. I test both changes in state unemployment rates and state-weighted GDP growth. I also resolve differences in the various sources documenting the three types of EWEs in different states and show two of the three contribute significantly to jobless recovery in the U.S. The results lend support to predictions of theory that increased firing costs decrease the rate of hiring during recoveries. Statistical tests show the adoption of both EWEs would slow decreases in the unemployment rate during recovery from recession by up to 0.352 percentage points annually.