The implications of employment liability for welfare reform

We analyze the importance of employment liability as a potential barrier to welfare reform. In particular, research linking wrongful termination doctrines to labor market outcomes is integrated with empirical analyses of welfare caseloads to obtain evidence of the likely importance of liability risk to the willingness of firms to hire welfare participants. Calculations suggest that liability concerns were probably not a major factor in past decisions about whether or not to hire AFDC recipients. Nationally, the elimination of tort liability for wrongful termination could have provided additional jobs for fewer than one percent of welfare recipients. However, with evolving court doctrines, liability risks could become more important in the future, especially in those state jurisdictions, such as California, where employers traditionally have faced the prospect of punitive damages for wrongful termination.