Length of Service, Terminations and the Nature of the Employment Relationship

Katharine Abraham and James Medoff

No 1086, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents new survey evidence that relative protection against job loss grows with length of service, independent of their net value to the firm. This protection makes good sense given that at most companies employees appear to earn less than their value marginal product in the early part of their tenure and more than their value marginal product in the latter part; without job protection policies for senior employees, the firm would have an incentive to terminate them when their "spot" earnings went above their "spot" value marginal product. In particular, we find that a very large percentage (over 95 percent) of hourly union members outside of agriculture and construction are covered by protective policies for senior workers and, that a somewhat smaller, but still substantial, percentage (about 85 percent) of comparable nonunion hourlies also have some protection against jobloss in their senior years. The potential reasons for these findings are briefly discussed.

Date: 1983-03
Note: LS
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Published as Abraham, Katharine G. and James L. Medoff. "Length of Service and Layoffsin Union and Nonunion Work Groups." Industrial and Labor Relations Review, Vol. 38, No. 1, (October 1984), pp. 3-19.

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