Government-Regulated Job Insecurity

Widespread reports of rising insecurity among American workers constitute a great anomaly in this period of unusually low unemployment. Sadly, this apparent paradox is a cogent example of the unintended consequences of government regulation.

Recent surveys show that, as a portion of the workforce, about three times as many people fear losing their jobs in today's prosperous economy than in 1981. Back then, the unemployment rate was painfully high--above 10 percent--while in recent months the rate has hovered around an unusually low 4 percent.

Meanwhile, the average job tenure (length of time employees have been holding their jobs) has not significantly changed. In fact, average job tenure is slightly up--from a low of 3.4 years in 1987 to 3.6 years in 1998 (the most recent period for which data are available).

Watch for WARN

So what accounts for the rising feeling of job insecurity on the part of so many American workers? Nobody knows for sure, but there is good reason to believe that, in good measure, this sad situation is an artifact of well-intentioned labor legislation.

In 1988, Congress passed the Worker Adjustment and Retraining Notification (WARN) Act. Among its many other bureaucratic provisions, the WARN Act generally requires employers to provide 60 days advance notice of layoffs involving 500 or more workers. (As in every regulatory statute, there are numerous exceptions and special cases.)

The penalties for non-compliance are severe. An employer who is in violation of this paperwork requirement is liable to pay each "aggrieved employee" back pay and benefits for the full period of the violation, up to 60 days. In addition, an employer who fails to provide the required layoff notice to the local government is subject to a penalty of up to $500 for each day of violation.

As a result, it is not surprising that companies anticipating the layoff of 500 or more workers make sure they provide sufficient notice. In some cases, the number of people actually laid off has been substantially lower than the announced total (AT&T was perhaps the most dramatic example). But, in view of the potential penalties, it is clear why employers depart from the normal tendency to underestimate bad news.

As in so much other legislation passed by Congress, one sector receives special treatment: "regular Federal, state, and local government" agencies are generally exempt. That's neat. If a private business lays off 500 workers or more it must give notice to the affected workers or their representatives (such as a labor union) as well as to the state government's "dislocated worker unit," and to the local government. But if any of those governments themselves lay off 500 or more workers, they can keep quiet about it. It's only when the private sector eliminates jobs that Congress wants the public to know!

Our interest in this seemingly arcane bit of federal paper shuffling arises because there is no comparable legislation requiring employers to issue notifications of future hiring plans. From time to time, the typical worker encounters dramatic announcements of job layoffs on the evening TV news and in the daily paper. In striking contrast, reports of large layoffs typically are often the subject of continued media attention, usually on the front page of the local newspaper, with follow-on dramatic interviews about the hardships that will be created.

Rarely seen, though, are comparable headlines proclaiming the expansion of local employment--and the overall creation of 16 million new jobs in the United States since 1990 (and a drop in the unemployment rate from 5.6 percent to 4.1 percent during the same time period). The monthly reports by the Bureau of Labor Statistics--typically informing us that employment rose and the unemployment rate declined--are, if covered at all, relegated to the depths of the paper's financial section.

This is not primarily a criticism of the journalism profession, although media coverage of economics could benefit from some further improvement. Nevertheless, it is sad to note that this period of unusually good news on the employment and unemployment fronts gets interpreted by so many American workers as a time to be worried about the future.

Of course, Congress never intended to pass a statute designed to increase worker insecurity. But the Law of Unintended Consequences is thriving in the federal regulatory system.

Murray Weidenbaum is chairman of the Center for the Study of American Business.

For more information ...

Wages, Water and Stagnation. Regulations decrease worker productivity--and wages as well. (Regulation, Fall 1997, 3pp.)

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