The Effects of Advance Layoff Notice
Paper Session
Saturday, Jan. 6, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Matthew Notowidigdo, University of Chicago
Without a Word of WARN-ing: Advance Notice, Information Quality, and Labor Market Outcomes
Abstract
I study the effects of mandated advance notice of employment loss on workers' labor market outcomes. Despite widespread use of advance notice, there is little empirical evidence on its consequences. Following the adoption of state-level advance notice laws, I find a four percentage point reduction in the incidence of joblessness and a four percentage point increase in labor force participation after mandated advance notice is in place. The benefits to workers accrue unevenly. Advance notice increases a woman’s likelihood of re-employment by seven percentage points but has no impact on a man's likelihood of re-employment. Collectively, my results suggest a critical role of advance notice in unemployment rates.Mandatory Notice of Layoff, Job Search, and Efficiency
Abstract
In all OECD countries, Mandatory Notice (MN) policies require firms to inform workers inadvance of layoff. Notification encourages workers to search for a new job while still employed.
In theory, MN allows workers to avoid unemployment and find better jobs, increasing future
production. The magnitude of this production gain depends on the relative effectiveness of search
while employed versus unemployed. But on-the-job search and reduced work incentives decrease
current production. Should the production losses outweigh future gains, Coasian bargaining
predicts that firms offer severance instead of adhering to MN – thus enhancing the production
efficiency of the policy. With Coasian bargaining, the efficiency loss of MN solely comes from
delayed separation of unproductive job matches. We test these predictions using novel Swedish
administrative data on layoff notifications. We first show that workers eligible for longer mandated
notice are not only notified in advance, but also receive larger severance. As a result, they
experience shorter non-employment spells and find better-paying jobs. Moreover, longer notice
causes workers to engage in fewer job search activities while still finding better-paying jobs
without delay. Advance notice thus replaces job search while unemployed with more effective
search while employed. We then gauge the production loss of MN by estimating the impact of
notice on workers’ productivity and the loss due to delayed separations. Finally, we evaluate the
overall efficiency implications of MN by combining the empirical estimates of production gains
and losses of MN using our theory. In our setting, the benefits of MN seem to outweigh the costs.
Time to Say Goodbye: The Macroeconomic Implications of Termination Notice
Abstract
In many countries, a sizeable portion of unemployment insurance is provided by employment protection policies, most commonly, termination notice. I show how termination notice alters wage bargaining outcomes and disincentivises job creation. I study the insurance role of termination notice mandates in a general equilibrium heterogeneous agents model calibrated to moments of the Israeli labour market, which has both conventional unemployment insurance and termination notice. I demonstrate the complementarity between the two policies in the presence of moral hazard, which makes their joint design desirable. Finally, I find that termination notice is underutilised in the Israeli case.Discussant(s)
Lars Vilhuber
,
Cornell University
Bruce Fallick
,
Federal Reserve Bank of Cleveland
Ioana Marinescu
,
University of Pennsylvania
Katarina Borovickova
,
Federal Reserve Bank of Richmond
JEL Classifications
- J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy