Contracts, Markets, and Laws in the US and Japan
Edited by Zenichi Shishido
Chapter 1: What we know (and don’t know) about how employment protection law affects employment
This book aims to describe and theorize “enterprise law,” a concept that encompasses all of the private contracts and public regulations that affect shareholders, creditors, management, and employees as they participate in a business enterprise. Each chapter explores how markets, contracts, social norms, and legislation interact to create incentives for these various actors. The resulting incentives influence market behavior and play a crucial role in determining the optimal configuration of enterprise law. I focus in this chapter on how the constellation of legal rules known as “employment protection law” (EPL) affects the incentive bargain between workers and their employer. Section 1.2 compares the many specific legal constraints on discharge in the US to the more general just-cause standards that prevail elsewhere in the world. Section 1.3 highlights several prominent theoretical and empirical analyses of EPL and identifies the limitations that make those studies ultimately inconclusive. Section 1.4 uses a comparatively simple principal–agent framework to illustrate the fundamental tension between incentives and insurance. Section 1.5 critically reviews some of the most intriguing arguments for adopting a general “just-cause” requirement. Section 1.6 focuses more narrowly on the descriptive flaws and analytical contradictions that undermine one scholar’s behavioral economic approach to employment termination law.
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