We consider a simple employment contract model to analyze the difference between two remedies for unjust dismissals: damages vs. reinstatement. The bargaining power of workers in the reinstatement case is stronger in severe recessions than it is in the damages case. In contrast, reinstatement...

In the real world, there are various regulations concerned with the dismissal of employees. We consider the effects of dismissal regulations with a simple incomplete labor contract model. Under moral hazard, the existence of a regulation always increases wage level and decreases firms' profits....

I consider the effects of employment protection (EP) on worker incentives in the labor market with search friction, where EP is categorized into severance pay (SP) and procedural inconvenience (PI). When firms cannot distinguish shirkers, EP seems to negatively affect worker incentives, because...

Under incompleteness of contracts, we consider one role of unions to be as a commitment device. When wage and dismissal rate contingent on the states are not described in labor contracts, although a wage offer is verifiable, the firm cannot promise to keep employment ex ante and cannot make...