Just, unjust, and just-cause dismissals

Job security or just-cause employment laws have been studied in several moral hazard or shirking models of efficiency wages. Employment rises in some models, falls in others. Curiously, these models usually assume either that Ilo non-shirking workers are unjustly fired or that no shirking workers are justly fired. This paper allows for both types of dismissals. Because the just-cause law reduces the number of unjust dismissals, worker welfare rises. Because the number of just dismissals also falls, productivity declines. Overall, the just-cause laws lead to greater worker welfare with no drop in profits or output.