Journal of Economic Perspectives: Vol. 23 No. 4 (Fall 2009)


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Job Loss and the Fraying of the Implicit Employment Contract

Article Citation

Hallock, Kevin F. 2009. "Job Loss and the Fraying of the Implicit Employment Contract." Journal of Economic Perspectives, 23(4): 69-93.

DOI: 10.1257/jep.23.4.69


Most workers have one employment contract that is explicit and another one that is implicit. The explicit employment contract specifies working hours, compensation, and job tasks. The implicit contract involves expectations about the extent to which the employment relationship is likely to continue over time. Will the firms will seek to avoid mass layoffs unless or until absolutely necessary? Will firms cushion the wages and compensation of employees to some extent from broad swings in the economy? Will employees show some degree of loyalty to the firm? This paper will argue that, along a number of dimensions, the nature of the worker-firm employment relationship may have changed substantially in recent years -- a group of changes that as a whole have negatively affected the lives of workers and produced modest, if any, benefits for firms. If employers have become less involved with cushioning the blow of unemployment and avoiding layoffs where possible, then public policy might have a role to play in spreading the burden of a down labor market so that the burden is not borne so heavily by those who lose their jobs entirely.

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Hallock, Kevin F. (Cornell U)

JEL Classifications

J31: Wage Level and Structure; Wage Differentials
J41: Labor Contracts
J63: Labor Turnover; Vacancies; Layoffs


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