Litigation Costs and Returns to Experience

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Abstract
We develop a model linking maximum damage awards available to plaintiffs in wrongful termination lawsuits, workers' propensity to sue as a function of experience, and returns to experience. Using Equal Employment Opportunity Commission data on protected-worker discrimination complaints and labor-market data from the Current Population Survey, we examine how returns to experience among protected workers changed around the passage of the Civil Rights Act of 1991. We show that employers' reactions to employment protections may induce redistributive effects. Furthermore, these effects operate not merely across groups of differing protected status, but also within groups of identical protected status. (JEL D21, J31, J71, K31)