Alessandro Melcarne (Université Paris Nanterre)
Stefano Dughera (Università di Torino)
We develop a shirking model with firing costs and imperfect EPL enforcement. When workers can rely on prompt and favourable labor-trials, the efficiency-wage is increasing in judicial delay and decreasing in the share of pro-labor justice. Hence, imperfections in EPL enforcement force firms to pay higher wages to induce workers to put forward their labor effort. Then, we test our empirical predictions using macro-data on French labor courts. All our estimates support the predictions of our theoretical model. Endogeneity issues concerning the effect of pro-labor judges are dealt with through an IV strategy.