The Value of Advance Notice of Worker Displacement

Abstract

This study estimates the value of advance notice of job termination to displaced workers. Advance notice may reduce the cost of unemployment by shortening or eliminating the period without work following job termination. Workers receiving advance notice may realize a higher wage in subsequent employment than other displaced workers. We estimate the impact of advance notice separately for workers displaced due to plant closing or moving and for those displaced due to slack work or abolishment of shift or position. There are other benefits that also may be associated with advance notice that are not examined here. As examples, advance notice may avert some plant closings by opening negotiations or may result in new employers filling vacated facilities more quickly. There also may be some planning benefits such as reallocation of family expenditures. Before estimating the impact of advance notice, relevant job search models are reviewed in the next section. This is followed by a description of the data used in this study. Two methods are used to compare workers that received advance notice with those that did not receive advance notice in terms of duration without work and subsequent earnings. These results are used to estimate the value of advance notice for each of the components. Our two methods of estimating the impact of advance notice give similar results indicating that advance notice has a significant impact on average duration without work. Between 1979 and 1984, about 4.2 million weeks without work were avoided because workers were given advance notice. Those that did not receive advance notice of displacement incurred an additional 3.8 million weeks without work. Much of the benefit of advance notice is because of the portion of workers that receive notice and find jobs before displacement. We do not find evidence that advance notice results in higher wages. More workers were displaced due to slack work or abolishment of position or shift than were displaced due to plant closing or move. More importantly, we find that workers displaced due to slack work or abolishment of shift or position experienced longer periods without work