“Unemployment Duration under
Wrongful Discharge Law”
E
E
Ch
Kristin A. Nicholson
conomics Department
Charles M. North
conomics Department
arles_North@baylor.edu
2004-055-ECO
UNEMPLOYMENT DURATION UNDER
WRONGFUL DISCHARGE LAW
Kristin A. Nicholson
Charles M. North*
Department of Economics
Baylor University
One Bear Place # 98003
Waco, Texas 76798-8003
July 2004
ABSTRACT
In the 1970’s and 1980’s, courts in most U.S. states adopted some type of common law wrongful
discharge cause of action. The various causes of action for wrongful discharge are generally
placed into three categories: public policy, implied contract, and good faith. This paper examines
the effects of state-level wrongful discharge actions on the duration of unemployment spells. We
use individual data from the March supplements to the Current Population Survey for 1979-
2000, refining the sample in various ways to correct for shortcomings inherent in CPS data on
unemployment spell duration. Results indicate that judicial adoption of wrongful discharge law
lengthened the duration of unemployment spells. For the broadest sample of workers, all three
types of wrongful discharge law lengthened unemployment spells. However, when the analysis is
limited to workers who can be matched across their two years of participation in the survey, only
the implied contract action has a significant effect. In addition, we look for the presence of
differential insider/outsider effects, as have been found in studies of European employment
protection legislation, but we find only limited evidence of such effects.
JEL Codes:
J64 - Unemployment: Models, Duration, Incidence, and Job Search
K31-Labor Law
Keywords: unemployment duration, wrongful discharge, employment-at-will
* Corresponding author: North. E-mail: Charles_North@Baylor.edu. Telephone: (254) 710-6229. Fax: (254) 710-
6142. For helpful comments, the authors thank Martha Bailey, Patricia Nun