at-will principle. He seemingly accepts that the at-will doctrine would otherwise permit
efficient transacting. Given the judicial innovations, however, there is scope for unjust
dismissal legislation to clarify property rights to jobs and to reduce uncertainty/limit
employer liability. He is thus offering a second-best rationale for legislation. His analysis
proceeds at two levels. The first is a discussion of the origins of legislation in the one
U.S. state to have adopted an unjust dismissal statute, Montana; the other is an analysis of
legislative proposals in all state legislatures linked to the degree of attenuation of the at-
will principle.
The keynote of the institutional analysis is the large awards given to those adjudged to
have been wrongfully dismissed in that state, as well as other states (see also Dertouzos,
Holland, and Ebener, 1988). The cet. par. analysis shifts to national developments and in
particular the (up to) three type of exceptions to at-will recognized in the state courts -
the public policy, implied contract, and good faith exceptions - in some 42 states, and the
ten pieces of legislation that have been introduced in nine states, including Montana. The
maintained hypothesis is that legislation can be expected to receive support from both
sides of industry because the attenuation of at-will has produced uncertain and
incomplete property rights to jobs and large transaction costs/highly variable awards in
disputes over improper dismissals. Enter the political compromise hypothesis: unjust
dismissal laws may be “an acceptable compromise between limited employer liability
and assumption of fault” (Krueger, 1991, p. 653). The prediction is that legislation is
more likely in states where exceptions have already been recognized by the courts.
Krueger estimates a simple logit model of the determinants of legislation, 1981-88. In
substitution for each (lagged) exception entered individually, in one specification he
includes the total number of exceptions. Controls include the proportion of workers in a
state who are union members, the proportion of Democrats in the state legislature, the
proportion of state employment in manufacturing, and the state unemployment rate. On
average, the presence of the public policy exception increases the probability that a state
legislature will propose an unjust dismissal statute by 8.5 percent, a good faith exception
by 6.7 percent, and an implied contract exception by 2.0 percent (although the latter