We model the relationship between maximum damage
awards available to plaintiffs in wrongful termination lawsuits
and the returns to experience among protected workers. Firms learn
workers' abilities over time, so younger workers are more likely
to be terminated. As a result, increases in maximum damage awards
may increase the returns to experience by making younger workers
more expensive to employ. This effect is mitigated, however, if
older workers are more likely to sue conditional on being fired.
This reasoning suggests a relationship between damage awards,
workers' propensity to sue as a function of experience, and returns
to experience. The passage of the Civil Rights Act of 1991 (CRA91)
provides an opportunity to assess this relationship empirically.
We use data on Equal Employment Opportunity Commission (EEOC)
filings to compare rates at which blacks and women file complaints,
and examine changes in returns to experience for these groups
using the Current Population Survey. The EEOC data indicate that
wrongful termination complaint rates among women drop sharply
with age, while complaint rates for blacks increase slowly with
age. We find an increase in the returns to experience for women
following the passage of CRA91, while the returns to experience
for blacks are unchanged. Our analysis suggests that employers'
reactions to employment protections may induce redistributive
effects, and that these effects operate not merely across groups
of differing protected status, but also within groups of identical
protected status.
Paul Oyer, Department
of Management and Strategy, Kellogg Graduate School of Management,
Northwestern University
Scott Schaefer, Department of Management and
Strategy, Kellogg Graduate School of Management, Northwestern
University
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