Effects of job security laws in a shirking model with heterogeneous workers

Abstract

This paper explores the policy implications of job security laws. It extends Carter and De Lancey`s (1997) efficiency wage model from the assumption of two types of workers to allow for infinite types of workers. One key difference between the models is that the proportion of nonshirking workers in equilibrium is an exogenous constant in their model, whereas it is an endogenous variable in this study, They find that a job security law increases the welfare of both shirkers and nonshirkers without reducing output. In this setting, it is shown that the law may increase the welfare of both shirkers and nonshirkers at the cost of lower output, or it may result in higher output, but the welfare effect of workers is uncertain.