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7
Current Policies for Worker Adjustment
In this chapter, we survey the structure and adequacy of the public and
private policies that deal with the needs of entrants to the labor force and
workers displaced by technological change. We include in this discussion
a consideration of human resources policies, including training for en-
trants to the labor market, job search assistance, training and retraining
for workers who have been or may be displaced by technological change,
and income support for those displaced workers. The primary emphasis
of this chapter is on public policies; Chapter 6 discusses private sector
policies that encourage cooperation between managers and labor. Be-
cause of the complexity of the adjustment problem, however, we also
address here the human resources policies that can be used by firms to
deal with worker displacement policies such as advance notice of plant
closings or large permanent layoffs, severance pay, and employer-
provided training. There are important deficiencies in current policies in
all of these areas. Many of our recommendations in Chapter 10 follow
from this analysis.
As noted in previous chapters, technological change will create unem-
ployment in some occupations, industries, or regions, and it appears
likely that it will increase the demands on the existing system through
which workers retrain and acquire job-related skills. Indeed, the broader
issue of worker training and skills requires attention. Where do workers
currently receive their job-related training? How is the employer invest-
ment in training allocated between blue-collar and white-collar employ-
ees? Can the U.S. training system respond to surges in the demand for
137
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138 TECHNOLOGYAND EMPLOYMENT
new skills for example, can it train robot technicians or software
engineers in response to increased demand for these specialists? Building
on the discussion in Chapters 3 and 5, we also discuss briefly the skills
needed by labor force entrants and the ability of training institutions to
provide them. Finally, we consider displaced workers and the public and
private programs for dealing with displacement.
JOB-RELATED TRAINING
Some evidence from other nations supports the hypothesis that job-
related training contributes to international competitiveness, although
these data are qualitative rather than quantitative. Japan, Sweden, and
West Germany each have unique systems for job-related skills training,
and all of them appear to provide higher levels of such training to the
blue-collar work force than does the U.S. system. These nations also
appear to be adopting some advanced manufacturing technologies more
rapidly than the United States (see Chapter 21. There is no direct evidence
of a link between these phenomena, nor do we have internationally
comparable data on investments in job-related skills training within the
United States and other countries. Nonetheless, the work of Nelson et al.
(1967) and Bartel and Lichtenberg (1987), discussed in Chapter 2,
suggests that such investments may play a role in the more rapid adoption
of new technologies within these foreign economies.
Where Do Workers Receive Their Training?
In the United States, occupational training is provided by a large,
decentralized "system" that defies neat description. A. P. Carnevale of
the American Society for Training and Development has explored some
of the system's proportions; as he states in a 1986 article in the Training
Detailed descriptions of the national training systems in these countries can be found in
such sources as the International Labour Office (1985), the Organisation for Economic
Co-operation and Development (1973), and the U.S. Congress's Office of Technology
Assessment (1986b). The West German system relies heavily on apprenticeship programs
for its labor force entrants; 50 percent of the individuals completing compulsory education
entered such programs in 1977. The Japanese system, which since the 1950s has been
characterized by long-term employment commitments to workers from large corporations,
features heavy investment by such corporations in training employees through formal and
informal means and job rotation. Public funding in Japan also supports upgrade training for
employed workers. In Sweden, large public investments (retraining and labor adjustment
programs account for 2-3 percent of Swedish GNP) in training and retraining of the
employed work force are combined with an elaborate system of vocational and technical
education for labor force entrants and the unemployed.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 139
and Development Journal: "Workplace training and development is
roughly equivalent in size to the entire elementary, secondary, and higher
education systems" (p. 184. Carnevale estimated that the annual costs of
the "total learning enterprise"2 in the United States were over $450
billion in 1985; of this total, he estimated that about $210 billion (or 47
percent) goes for formal and informal employee training.
The most important source of skill improvement training, which is
acquired once a worker is employed, is the employer (Table 7-11. More
than 70 percent of skill improvement courses ("Formal Company
Programs" and "Informal On-the-Job Training," in Table 7-1) are
conducted at a worker's place of employments (Carnevale and Gold-
stein, 19834. The dominant role of employers in funding or providing
such training also affects its distribution between white-collar and
blue-collar workers; white-collar workers receive much more employer-
provided training. College graduates are twice as likely as the average
worker to receive employer-provided adult education, whereas those
with less than a high school education are only one-fourth as likely to
receive such education. Employer-provided adult education thus tends
to increase any differences in the educational attainment of workers that
are already present when they enter the labor force. These conclusions
about the skewed distribution of employer-provided adult education
were confirmed by Tierney (1983), who found that those workers with
some graduate training were seven times as likely to have received
employer-provided training as those with less than a high school
education. This divergence also means that whites are almost twice as
likely to receive employer-provided training as nonwhites. According to
Tierney, "formal education and training programs appear to be directed
toward those workers who already have substantial levels of educational
achievement" (p. 161.
Employees in large firms also receive more employer-provided train-
ing than employees in small firms. Lusterman (1977) reports that firms
with 1() non or more emr~lovees spent an average of $86 per worker on
~ 7 _ ~ -~ - _ ~ - - - - ~
2Carnevale defines the '`enterprise" as comprising all public and private expenditures on
elementary, secondary, and postsecondary education; informal and formal employee
training; and government training for civilians. Although the U.S. military is a major
investor in training in a wide range of basic and job-related skills (it spent $18 billion in fiscal
year 1987 for formal training alone), the impact of this investment on the civilian work force
appears to be small, as Marcus (1987) has noted.
3The duration of training differs in school-based and workplace programs. In 1983 over 70
percent of the workers in formal company programs trained for less than 12 weeks;
two-thirds of the workers in school-based training (an unknown portion of which is employer
financed) trained for over 12 weeks, with approximately 38 percent in programs lasting more
than a year (Carey and Eck, 1985, Tables 32 and 41).
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140 TECHNOLOGY AND EMPLOYMENT
TABLE 7-1 Sources of Skill Improvement Training by Occupation (1983)
Workers Formal Informal
Who Took Company On-the-Job
Occupational GroupTraining SchoolPrograms Training Other
Executive, administra
tive, and managerial5,098 (47) 1,916 (18)1,884 (17) 1,688 (16) 836 (8)
Professional specialty7,802 (61) 4,352 (34)1,936 (15) 1,756 (14) 1,408 (11)
Technicians and related
support1,588 (52) 600 (20)550 (18) 585 (19) 166 (5)
Sales3,578 (32) 769 (7)1,411 (13) 1,642 (15) 487 (4)
Administrative support,
including clerical5,152 (32) 1,547 (10)1,565 (10) 2,423 (15) 392 (2)
Private household33 (3) 10 (1)7 (1) 14 (1) 10 (1)
Service workers, ex
cept private house
hold3,151 (25) 814 (7)955 (8) 1,528 (12) 360 (3)
Farming, forestry, and
fishing500 (16) 164 (5)51 (2) 203 (7) 142 (5)
Precision production,
craft, and repair4,133 (35) 863 (7)1,654 (14) 1,860 (16) 353 (3)
Machine operators, as
semblers, and inspec
tors1,639 (22) 228 (3)286 (4) 1,151 (16) 78 (1)
Transportation and ma
terial moving706 (18) 84 (2)235 (6) 376 (9) 50 (1)
Handlers, equipment
cleaners, helpers,
and laborers520 (14) 57 (2)92 (2) 381 (10) 19 (<0 5)
Total
33,901 (35) 11,404 (12)10,625 (11) 13,606 (14) 4,301 (4)
NOTE: All employment figures are in thousands. Percentages, which are calculated on
the basis of total employment in each occupational group, appear in parentheses. Many
workers reported more than one source of training, so percentages may not sum to 100. An
unknown fraction of skill improvement training in school is employer financed.
SOURCE: Carey and Eck (1985).
training annually. Smaller firms (500-999 employees) invested an aver-
age of $27 per worker annually. Of particular relevance to this study
is the fact that, according to Lillard and Tan (1986), reliance on
employer-provided training is even greater in technologically dynamic
industries.
In sum, employers provide the bulk of skill improvement training in the
United States, and such training tends to reinforce, rather than offset,
inequalities in preemployment educational attainment within the work
force. Inasmuch as technological change is likely to inflict the most
serious dislocations (measured, for example, in terms of duration of
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CURRENT POLICIES FOR WORKER ADJUSTMENT 141
unemployment) on the least educated workers, this tendency of
employer-provided training to reinforce inequality in the educational
attainment of employees is likely to exacerbate the severity of technolog-
ical displacement for low-skill, poorly educated workers.
Why do U.S. blue-collar workers (as used here, a category that
includes white-collar female clerical employees) receive less employer-
provided training than U.S. white-collar workers and less than blue-collar
workers in some other industrial nations? One tentative explanation for
U.S.-Japanese differences in such training investments focuses on the
contrasting structures of U.S. and Japanese labor markets (Hashimoto,
1979; Hashimoto and Raisian, 1987~. U.S. markets for blue-collar labor
tend to display relatively inflexible nominal wages, and the supply of and
demand for labor are equated through cyclical layoffs. Japanese labor
markets, on the other hand, historically have exhibited greater nominal
wage flexibility. A large share of the annual earnings of Japanese
production workers consists of bonuses, the amount of which is tied to
corporate performance, and Japanese labor markets also rely on longer-
term employment relationships.4 Both employer and employee therefore
face less uncertainty about turnovers and layoffs and can share the costs
of training in job-related skills more efficiently. For example, employees
can contribute a share of these costs by accepting starting wages that are
lower than would be the case in the absence of the training investment by
the employer.
In the United States, where blue-collar employee turnover is relatively
high (Levy et al., 1984, estimated that average annual turnover rates in
manufacturing were more than 20 percent) and layoffs are more common,
sharing training costs between employer and employee is more difficult;
there is, among other things, greater uncertainty about the probability of
layoffs and a firm's ability to retain the returns from its investment in
job-related skills training. Thus, the levels of investment in such training
appear to be lower, although better data are needed to support more
strongly or reject the predictions of this heuristic model. Interestingly,
some recent union contracts in the United States contain provisions
resembling those of Japanese labor contracts. Several recent collective
bargaining contracts in the U.S. aerospace and automotive industries, for
example, combine annual bonuses or profit sharing for workers with
corporate commitments to greater employment security and larger invest-
ments in worker retraining.
4Although this contrast has characterized U.S. and Japanese labor markets since the
early 1950s, recent structural changes in the Japanese economy, which have resulted in
some large layoffs, may alter the structure of Japanese labor markets and labor contracts in
the future.
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142 TECHNOLOGYAND EMPLOYMENT
The Adequacy of the Training System
Can the U.S. system we have described respond to changes in the
demands for specific job-related skills? Based on the evidence reviewed
by this panel, the U.S. training system for job-related skills appears to be
responsive to the demands of employers. This measure of adequacy does
not address the issue of the distribution of such education, nor does it
confront the adequacy of worker preparation in basic skills. Neverthe-
less, a serious "structural" mismatch between the supply of and demand
for skills in the American economy should be revealed in recurrent skill
shortages or in the unemployment of workers with particular skills in low
demand. In fact, there is little evidence of significant skill shortages for
any extended period, although unemployment within the population
receiving little job-related or basic skills training (the disadvantaged and
unskilled) has been a persistent problem for much of the post-1945 period.
The formal training system (comprising elementary, secondary, and
higher education) for labor market entrants (1~24 years old) also appears
to respond rapidly to changes in the skills demanded by employers
(Berryman, 19851. Especially within higher education, perceptions of
oversupply or excess demand in specific fields heavily influence students'
intended fields of study, their actual fields of study, and the level of
completed degrees. Comparable data for employer-provided training
almost certainly would reveal similar flexibility. Operating in conjunction
with the enormous size of the decentralized U.S. training system, this
flexibility offers considerable opportunities to alter rapidly the mix of
job-related skills in the U.S. work force. About 6 million students
completed programs of study at the secondary and postsecondary levels
during the 198(~1981 academic year; the annual output from these formal
channels was approximately 5.7 percent of the work force. As Berryman
puts it, "the sheer number of these completions per year represents a
remarkable opportunity to rapidly re-configure the skill profile of the
American labor force" (p. iii).
This evidence suggests that the enormous system that trains workers in
job-specific skills can respond to changes in the demand for skills of
different types resulting from the adoption of new technology or structural
change in the economy. In fact, in some instances the supply mechanism
may respond too rapidly to anticipated changes in demand as in the rush
to secure robotics technician training in 1982-1983, when there was one
student enrolled in an introductory robotics course for every robot likely
to be purchased (Hunt and Hunt, 1983~. Consequently, we see little if any
need for additional investments in forecasting skill requirements or
training needs, especially since the reliability of these forecasts re-
flecting their high levels of uncertainty and the weak methodologies they
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CURRENT POLICIES FOR WORKER ADJUSTMENT 143
use has been low. (See Binkin, 1987, for a critical assessment of the
U.S. military's experience in forecasting occupational trends and training
requirements.)
TRAINING IN BASIC SKILLS FOR
LABOR FORCE ENTRANTS5
Labor force entrants acquire basic skills largely within the U.S. public
educational system, and educational attainment is a rough index of a
worker's level of preparation in these skills. As we noted earlier, basic
skills currently are important for obtaining entry-level jobs and will be
even more important in the future for obtaining better-paying jobs and for
climbing the economic ladder toward higher earnings. As indicated by the
evidence in Chapter 3 on growth during the past decade in the returns to
higher levels of educational attainment, the distribution of educational
attainment within the U.S. population will have a great influence on the
distribution of the economic fruits of technological change. Although
educational attainment is improving within the labor force entrant popu-
lation, the large remaining gaps in attainment among whites, blacks? and
Hispanics are a cause for concern. More limited evidence, noted in
Chapter 3, suggests that the quality of basic skills training for U.S. labor
force entrants is lower than that provided to the labor force entrants of
other nations (e.g., Japan). Significant deficiencies in the quality of such
training for U.S. labor force entrants relative to other nations will impede
the ability of this nation to generate and adopt new technologies with
sufficient speed and effectiveness to remain competitive in the world
economy.
DISPLACED WORKERS
Although we believe that employment displacement resulting from
technological change will not be widespread, there will be transitional,
regional, and occupational dislocation. As we noted in Chapter 3, the
BLS estimates that the number of experienced workers suffering per-
manent job loss from all causes is roughly 1 million persons per year.
Currently, there are no analyses of the number or characteristics of the
smaller population of workers who have been displaced by technological
change. Such data are important because the needs of these workers may
differ substantially from those of the larger displaced worker population.
5The data on educational attainment in Chapters 3 and S underlie this assessment of the
adequacy of basic skills training for labor force entrants.
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144 TECHNOLOGYAND EMPLOYMENT
Lacking this information, in the discussion later in this section we do not try
to differentiate among workers according to cause of displacement. As we
note in Chapter 10, there are also strong arguments against making such
distinctions in the design and implementation of adjustment assistance
programs for displaced workers.
Workers displaced by technological change receive greater attention
than firms suffering dislocations from the same cause because of the
greater adjustment problems of workers. Over a working career a worker
accumulates a stock of skills and "human capital" that may be highly
specific to a single occupation within a firm. When technological change
or other forces transform or result in the loss of that job, the value of a
worker's skill-based assets may suddenly vanish. A firm facing the loss of
markets for its products generally can redeploy its assets and working
capital more easily than an individual worker. Machinery and inventories
can be sold (albeit at a discount), allowing a firm to realize some return on
these assets and enabling it to adjust. Adjustment to technological or
structural change is difficult for both workers and firms, but the unique
problems faced by workers have drawn attention to their needs.
Much of the following discussion of programs for displaced workers
focuses on training in both basic and job-related skills. Although we
believe that additional resources should be devoted to retraining dis-
placed workers, we must stress that retraining is not a panacea. The
ability of retraining to restore the earning power of some displaced
workers, especially those previously employed in durables manufacturing
(e.g., basic steel), may be limited. Furthermore, many displaced workers
may not participate in retraining programs; they are interested primarily
in rapid reemployment, rather than retraining. The most important
function of public adjustment programs often is to provide job search
assistance and information, rather than retraining, for individuals who
may not have changed jobs for 20 years.
Characteristics
To assess the adequacy of policies that address their needs, reliable
information on the characteristics of displaced workers is essential. The
description in Chapter 3 of the displaced worker population noted the
following characteristics:
· Younger workers are more likely to be displaced, but the duration of
unemployment after displacement is greater for older workers.
· Both the duration of unemployment and the magnitude of earnings
losses associated with reemployment after displacement are higher in
regions with relatively high unemployment.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 145
· A large fraction of this population either is ineligible for unemploy-
ment compensation or exhausts these benefits prior to reemployment.
· Many displaced workers, especially those from durables manufac-
turing, experience serious financial losses as a result of displacement and
receive lower wages in their new jobs.
· A large portion of the displaced worker population suffers from
serious basic skill deficiencies.
Displaced workers are a heterogeneous population made up of groups
with different histories of employment and earnings and consequently
different needs for retraining and employment assistance. This fact
complicates the design of programs to serve them, as illustrated by a
discussion of two particular groups.
During the early 1980s, permanent job loss affected a segment of the
U.S. work force that previously had experienced limited long-term
unemployment that is, unionized, high-wage workers in curable s man-
ufacturing. By 1984 more than 800,000 of the 5.1 million experienced
workers identified by BLS as displaced during the previous 5 years came
from the nonelectrical machinery, automobile, and primary metals
(largely steel) manufacturing industries. Displacement of workers in these
industries has been a particular concern for policymakers and the public
alike, due to the unprecedented (by post-1945 standards) scope of
long-term unemployment within this group, as well as the financial
hardships associated with job loss in these industries.
Displaced workers from this sector generally are well-paid men with
years of steady employment in the same plant (Flaim and Sehgal, 19851.
Retraining in job-related skills is not likely to restore the previous
earnings of many members of this group, and most programs to aid them
focus on the transition between jobs. Job transition needs are addressed
by union contract provisions in many of these industries, provisions
whose aims are to reduce the short-term financial hardships of displace-
ment. Despite such transitional help, however, a substantial portion of
this group of displaced workers may face difficulties in finding new
employment because they lack the basic skills that ease the search for
new jobs.
Designing policies to aid this group is complicated by the difficulty of
determining whether their displacement is permanent. The high wages
these workers were able to secure in their original jobs, the likelihood
that alternative employment will mean a substantial cut in these wages,
and the availability of supplemental unemployment benefits (SUB)
in many of these industries all encourage these workers to avoid any
action that might divert them from reemployment in their former
occupation. Many of these workers choose to avoid the costs of
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146 TECHNOLOG Y AND EMPLO YMENT
retraining and searching for a new job, in hopes of being recalled to
work.
Another group within the displaced worker population comprises
individuals who are poorly educated, female, black or Hispanic, and
nonunion. According to the January 1984 displaced worker survey, nearly
900,000 of the 5.1 million experienced workers displaced during
1979-1983 were black or Hispanic; these workers experienced signifi-
cantly longer unemployment than did white workers (Flaim and Sehgal,
1985; Podgursky, 19871. The characteristics just noted (low education,
female, nonwhite, and nonunion) often are associated with lower-wage
employment; for these individuals, the acquisition of basic or job-related
skills may enhance their prospects for reemployment and also lead to jobs
at higher wages. Thus, this group is more likely to benefit from retraining
or training.
These two groups of displaced workers have different needs. The
electiveness of retraining in job-related skills to restore the earning
power of a displaced steelworker or autoworker may well be limited,
although training in basic skills is essential to some of these individuals
in finding new employment and job search counseling and assistance
also may be beneficial. For members of the second group, a combination
of basic skills training, job-related retraining, and job search counseling
and assistance could be of substantial help.
Federal Training and Income Support Programs
Since 1945, federal programs to aid displaced workers have consisted of
the Manpower Development and Training Act (MDTA) of 1962, super-
seded in 1973 by the Comprehensive Employment and Training Act; Title
III of the Job Training Partnership Act (JTPA) of 1982; Trade Adjustment
Assistance (TAA), passed in 1962; unemployment insurance, which
provides short-term income support to unemployed workers; and the
Perkins Vocational Education Act of 1984.6
MDTA was passed on the wave of public concern over technological
change and unemployment that gave rise to the National Commission on
Technology, Automation, and Economic Progress. The law was intended
to help technologically displaced workers with 3 or more years of work
experience by retraining these individuals for occupations believed to be
6Numerous sectoral federal adjustment programs have been developed during the past
century, ranging from the Interstate Commerce Act of 1887 to the Redwood National Park
legislation of 1978. These programs typically provided income support and retraining to
workers in industries affected by legislative or other governmental actions. All of them were
very narrowly focused.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 147
in high demand. After 1964, however, declining aggregate unemployment
resulted in a reorientation of the program toward disadvantaged rather
than displaced workers; it was eventually replaced by the Comprehensive
Employment and Training Act (CETA), which focused primarily on
disadvantaged workers. In 1982 CETA was replaced by the JTPA.
THE JOB TRAINING PARTNERSHIP ACT
After the reorientation of MDTA in the early 1960s, no federal programs
other than TAA addressed the problems of displaced workers until the
passage in 1982 of JTPA. JTPA's Title III, Employment and Training
Assistance for Dislocated Workers, provides federal funds to the states for
training and related employment services for workers who have been laid
off or have received notice of layoff and who are unlikely to return to their
previous industry or occupation. Workers who have been laid off or who
are about to be laid off because of a permanent plant closing and the
long-term unemployed are also covered.
Although the actual services available to workers under Title III vary
by state, they generally emphasize job search assistance. Support for
job-related retraining is modest, and there is little training offered in basic
skills. The U.S. General Accounting Office's recent survey of JTPA Title
III programs (1987a) found that in 1985 only 6 percent of program
participants received basic skills training (with a median duration of only
2 weeks), whereas 42 percent received some form of job-related training
through classroom or on-thejob learning. Eighty-four percent of Title III
program participants, on the other hand, received job counseling, and 66
percent received job search assistance. Overall, the General Accounting
Office has estimated that Title III serves only 6-7 percent of the annual
flow of displaced workers.
TRADE ADJUSTMENT ASSISTANCE
Trade adjustment assistance was first provided under the Trade
Expansion Act of 1962 to assist workers displaced as a result of the bill's
reduction of trade barriers. As originally enacted, workers were eligible
for the income support and training benefits offered by TAA only when
tariff reduction-and the import penetration of U.S. markets that often
followed was the single most important cause of displacement. The
Trade Act of 1974 broadened participation in the program by extending
benefits to any worker for whom imports "contributed importantly" to
his or her displacement. ("Contributed importantly" meant that import
penetration was an important cause of job loss but not necessarily more
important than any other cause.) As a result of this change in eligibility
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CURRENT POLICIES FOR WORKER ADJUSTMENT 149
between 50 and 70 percent of the average weekly wage. Because those
workers with above-average wages receive a lower proportion of their
former salary in unemployment benefits, the national average weekly
benefit was only 36 percent of the average wage in fiscal year 1986.
Average total benefits for fiscal year 1986 were $1,956; maximum total
1987 benefits range among the states from $3,120 to $9,900 (U.S. House
of Representatives, Committee on Ways and Means, 19874. For a worker
undertaking retraining, these benefits could provide as much as 26 weeks
of income support; but many states prohibit or otherwise discourage
individuals from receiving unemployment insurance payments while
enrolled in retraining (Barton, 1986) in order to minimize the time an
unemployed worker is drawing unemployment compensation.8
FEDERAL ASSISTANCE FOR UPGRADE TRAINING
FOR EMPLOYED WORKERS
The Perkins Vocational Education Act of 1984, the most recent revision
to legislation authorizing federal support for state-level programs in
vocational education, mandated that more than $90 million of the roughly
$882 million in federal support for vocational education be spent by states
on "adult" education, including "upgrade" training for employed work-
ers and education in basic skills for adults. In 1986 the U.S. Department
of Education began a large-scale evaluation of the Perkins Act; when its
results are available, they should inform the development of other federal
policies to improve the job-related and basic skills of the U.S. work force
(U.S. Department of Education, 19861. Indeed, rigorous program evalu-
ation is critical to all efforts to design new programs to help displaced
workers.
Evaluation of Federal Displaced Worker Programs
Have federal displaced worker programs improved the reemployment
prospects of participants? Unfortunately, research on the effectiveness of
adjustment assistance, including job training for experienced adult
workers, suffers from methodological problems and a shortage of data
and funding. The evaluations of MDTA (Ashenfelter, 1978; Bloom,
sCalifornia, through the California Training Benefit Program, provides an additional 26
weeks of state-funded unemployment benefits for displaced workers undertaking training in
an occupation for which there is demand in their geographical area (California Employment
Development Department, 1986a, 1986b). Displaced workers enrolled in training or other
adjustment assistance programs supported by funds from Title III of the JTPA also are
permitted to collect unemployment compensation throughout the United States.
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150 TECHNOLOGYAND EMPLOYMENT
1982; Sommers, 1968) do not provide sufficient evidence to support
broad statements about the effectiveness of these programs. Only three
recent evaluations of displaced worker programs the Downriver Com-
munity Conference Economic Adjustment Program (Kulik et al., 1984),
the Buffalo Dislocated Worker Demonstration Program (Corson et al.,
1985), and that sponsored by the Texas Department of Community
Affairs (Kulik and Bloom, 1986) have yielded reliable evidence on their
effectiveness.9 This small number of rigorous evaluations is disturbing,
considering that over $500 million has been spent on JTPA Title III
programs.
Two of these evaluations, supported by the U.S. Department of Labor,
examined demonstration and experimental programs that had been un-
dertaken immediately prior to the implementation of JTPA. The third was
supported by the Texas Department of Community Affairs, which used a
portion of its JTPA Title III program funds to sponsor and evaluate
several demonstration programs. These evaluations found that most
workers who received services from the programs were unemployed for
shorter periods and had higher wages in jobs found immediately after
completing the program than was true of workers in the control group
(Bowman, 1986~. Additional evaluations of workers over longer periods
of time, however, are necessary to determine whether these gains in
wages persist over the long run.
Despite their positive general findings, these evaluations provide much
less information on the effects of the specific services provided by the
programs. All three evaluations had design and implementation problems
that do not allow definitive conclusions about the relative merits of
different services within adjustment programs for displaced workers. For
example, the effect of job training, as opposed to job search assistance,
cannot be ascertained. The conclusions of these studies also may not be
applicable to displaced worker populations that are significantly different
from those of the study populations. Finally, although case study evi-
dence suggests that a large percentage of displaced workers suffer from
basic skill deficiencies, none of these programs offered this type of
training; thus, we have minimal evidence on the design and effectiveness
of programs providing basic skills training to displaced workers.
Clearer insights into the effectiveness of displaced worker programs
and the appropriate design of such programs must await the results of
further evaluations, one of which currently is being planned by the U.S.
9We exclude evaluation of TAA from this discussion because of the program's design and
certification requirements. The results of a large-scale evaluation of TAA are reported in
Corson et al. (1979); Aho and Bayard (1984) provide an overview and summary of a number
of evaluations of TAA.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 151
Department of Labor. Yet present levels of support for evaluation
are insufficient. The magnitude of projected expenditures on displaced
worker programs (as proposed in the President's fiscal year 1988 budget, as
much as $980 million annually), the paucity of evidence concerning the most
effective mix of services, and the significant differences in the costs of
various services all suggest that greater investments in program evaluation
are needed (see Chapters 8 and 10 for further discussion).
Although additional evaluations are needed to measure the effective-
ness of various program services, the bias in the existing JTPA Title III
program mix toward job search and placement services suggests that
workers with basic skill deficiencies may be underserved. Generally
speaking, we believe that there is too little emphasis on basic skills
training within Title III. It is difficult to accept the proposition that the
needs of workers with basic skills deficiencies can be addressed in 2
weeks of training, the average amount provided by Title III programs
(U.S. General Accounting Office, 1987a). In addition, Title III programs,
by virtue of the design of their contracts with service providers
(contracts that are based on performance in placing participants in jobs),
tend to process and train only those displaced workers who are easy to
place. Workers with basic skills deficiencies thus may be excluded. The
absence of income support within most Title III programs (beyond any
unemployment compensation for which displaced workers are eligible)
means that any training must generally be completed in 26 weeks or less
to avoid exhausting their unemployment insurance benefits. This re-
duces the attractiveness and efficacy of retraining and may make it
completely infeasible for the many displaced workers who do not
receive unemployment compensation.
State Programs: The California Employment
Training Panel
Most state-administered displaced worker training programs rely in
part on JTPA Title III funds. The California Employment Training Panel
(ETP), however, a training and employment assistance program, is
funded entirely with state monies. (ETP is also of interest because of its
size and innovative design.) The program was established in 1982; it
receives an annual allocation of approximately $55 million from a small
state payroll tax imposed on employers who pay unemployment insur-
ance.~° ETP provides training for both displaced workers and employed
reimposition of the ETP tax was made less onerous by an offsetting reduction in the state
unemployment insurance tax, a move made possible by the large surplus in California's
unemployment insurance fund.
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152 TECHNOLOGY AND EMPLOYMENT
workers threatened with layoff. Unlike JTPA, however, the worker need
not have received notice of an impending layoff to qualify for training
assistance.
By investing in training for workers before they are laid off, ETP
supporters argue that the program reduces the costs of personnel turnover
for employers and reduces outlays from the state unemployment insur-
ance fund. The state's support of retraining for employed workers also is
based on the belief that such retraining improves the competitiveness of
the state's industry by encouraging the adoption of new technologies;
ETP's goal is to avoid immediate job losses while strengthening long-term
employment opportunities (California Employment Training Panel, 19851.
A preliminary study of 1,200 ETP project participants who completed
training and were placed in jobs during 1983-1985 suggests that these
goals have been met: the average number of weeks of unemployment for
participants declined by more than 60 percent after ETP training, and
average earnings rose by more than 50 percent (Moore, 19861. This
evidence, however, is preliminary rather than definitive; it was not
compiled from a rigorous experimental design that included a control
group, nor were the workers graduating from ETP training tracked over
an extended period of time.
Without question, ETP represents an imaginative response to the imped-
iments to greater investment by firms in training their blue-collar work force.
The program's effectiveness in delivering retraining to the displaced worker
population, however, is limited. Basic skills training for employed and
displaced workers alike is not supported by the program as a matter of
policy. Moreover, ETP's performance requirement (in its contractual agree-
ments with training providers, the program requires that displaced workers
be placed in jobs for 90 days prior to payment for the training provided)
discourages many potential external providers of training for displaced
workers (e.g., community colleges) from participating. Although it was
initially intended to provide retraining for experienced workers who were
actually unemployed as well as threatened with unemployment, ETP in-
creasingly appears to be financing the training by firms of their employed
work force. Thus, the program may in some cases substitute public funds for
training investments that would have been made in the absence of the
program, which means that there is no net increase in the delivery of training
services to workers threatened with displacement.
ETP and other state-level programs that fund training for the employed
work force offer a rich set of policy experiments for analysis and evaluation.
(See Stevens, 1987, for a descriptive survey of such programs.) Federally
supported evaluations of a sample of state programs could yield useful
information about the design and effectiveness of these programs for
decision making at both the state and federal levels.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 153
Displaced Workers and Adult Education
The majority of federal and state programs for displaced workers rely
on the existing adult and community college educational infrastructure to
deliver basic skills and job-related training. These postsecondary educa-
tional institutions have compiled a mixed record of success in meeting
such demands. A recent study by Bruno (1986) noted that many commu-
nity colleges historically have served college-age students rather than
more mature displaced or employed workers. Historically, many of these
institutions have not pursued curriculum development and staffing poli-
cies to meet the needs of displaced workers for training in basic or
job-related skills. This pattern of development has hampered the ability of
many of these institutions to meet the needs of displaced workers. As Bruno
observes:
. . . the community colleges and vocational-technical schools must reexamine
their philosophy and policies if they are to meet the growing need for training
created by dislocated workers. Unlike traditional college students, they have
neither the time nor financial resources after being laid-off to enroll in a one- or
two-year certificate program. They are in a state of crisis that must be addressed
quickly. (p. 59)
The very technologies whose development has created concern over
worker displacement have great potential for the innovative delivery of
training in basic and job-specific skills. For example, one of the greatest
impediments to participation in adult education programs is the reluc-
tance of displaced workers to subject themselves to a classroom environ-
ment. Advanced teaching technologies, such as self-paced instructional
workstations, can support individualized learning outside the classroom,
thereby enhancing the attractiveness and effectiveness of basic skills and
job-related skills training.
Although the existing educational system exhibits a number of deficien-
cies in meeting the needs of displaced workers, many innovative commu-
nity colleges have shown themselves capable of doing so when offered
financial incentives. Better financing of worker access to this system
through income support and other financial assistance for retraining can
motivate community colleges and other adult education institutions to
address the special needs of displaced workers. Careful program over-
sight and evaluation, however, also are necessary.
Private Adjustment Programs
In recent years, federal and state income support and retraining
programs have been supplemented by a growing number of privately
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154 TECHNOLOGYAND EMPLOYMENT
funded, joint union-management programs. In a number of manufacturing
industries, unions have negotiated supplements to regular unemployment
benefits. These benefits are coordinated with regular unemployment
insurance and provide higher benefit levels as much as 95 percent of
take-home pay for up to 1 year (Jacobson, 1986~. Through collective
bargaining, a number of firms have also established early retirement
programs. (Such plans, however, typically require giving up the right to
be recalled to work.) In some unionized industries (e.g., steel), workers
who are displaced can qualify for severance pay or pension supplements
based on a combination of years of service and age. Severance pay is not
widely available, mainly because workers do not want to give up recall
rights, and it is often offered as part of a plant closing settlement.
Moreover, recent events (e.g., the bankruptcy of the LTV Corporation, a
major steel producer, in 1986) suggest that these payments are not com-
pletely reliable. Firrn bankruptcies can jeopardize these supplemental or
severance benefits.
An analysis of data from a recent survey by the U.S. General
Accounting Office (1987b) of layoffs and plant shutdowns involving
establishments with more that 100 workers found that severance pay
was one of the most common forms of private adjustment assistance-37
percent of the respondents provided severance pay to their blue-collar
employees, and 57 percent provided such compensation to white-collar
employees. Another common form of assistance was employer continu-
ation of health insurance coverage. Thirty-eight percent of firms provided
this benefit for blue-collar employees, and 48 percent did so for white-
collar employees (the published survey data do not specify the length of
the period of health insurance continuation). Other common forms of
employer-provided adjustment assistance include the continuation of life
insurance coverage (22 percent of the firms provided this benefit for
blue-collar employees and 30 percent did so for white-collar workers) and
job search assistance (provided by 26 percent of firms to blue-collar
employees and by 35 percent to white-collar employees). The survey does
not provide a breakdown of the benefits coverage of unionized and
nonunionized workers. Nevertheless, this evidence suggests that white-
collar employees receive somewhat more generous adjustment assistance
from employers after plant shutdowns or layoffs.
A number of programs have been established recently through collec
'iGAO mailed survey forms to 500 establishments chosen from an initial sample of 2,400.
Data incorporating responses from 60 percent of the firms surveyed are published in its 1986
report (U.S. General Accounting Office, 1986); data incorporating responses from 80 percent
of the firms are published in a 1987 report (U.S. General Accounting Office, 1987b). Brown
(1987) presents date from the GAO survey that includes responses from 80 percent ofthe firms.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 155
tive bargaining to assist displaced workers and provide training services.
The best-known examples of these programs are the United Auto
Workers (UAW)-Ford and UAW-GM "nickel" and "dime" funds. The
UAW-Ford program, which began with the 1982 contract, provides
services to displaced hourly employees that are similar to those pro-
vided under JTPA; job search assistance, counseling, tuition assistance
for education and retraining, and, beginning in 1984, relocation assist-
anceintheformofloans. Between 1982 and 1985, approximately 12,600
laid-off Ford workers took part in one or more of the programs. Based
on industry and union estimates that at some point during this period
approximately 100,000 Ford hourly workers were laid off, this yields a
participation rate of 13 percent. Although these programs are primarily
funded by employer contributions, they also receive JTPA funds
(Pascoe and Collins, 19851.
Advance Notice of Plant Shutdowns or Permanent
Layoffs as a Mechanism for Adjustment
The best time to undertake programs of job search assistance, coun-
seling, and retraining for workers is prior to their displacement. In most
cases, this can occur only with the cooperation of the employer
cooperation that includes advance notice to workers of impending plant
shutdowns or large permanent layoffs. The efficacy of predischarge help
reflects the tendency of workers to disperse after layoff, the greater
effectiveness of programs that have the cooperation of management and
workers, and the greater willingness of workers to enroll in such programs
when they are available prior to layoff.
Data on the operation of several adjustment assistance programs for
displaced workers confirm that pre-layoff assistance is used more inten-
sively by workers. According to the Downriver Community Conference,
50 percent of workers participated in adjustment programs that were
available prior to plant closure, 35 percent participated in programs made
available up to 1 year later, and only 17 percent participated in programs
offered after 2 years (U.S. Congress, Office of Technology Assessment,
1986a). The Philadelphia Area Labor-Management Committee found that
employee participation in worker assistance workshops ranged between
70 and 80 percent when these workshops were provided prior to layoff;
'2There exists no consensus on the "optimal" period of advance notice, but discussions
of best-practice methods for plant shutdowns (Driever and Baumgardner, 1984) suggest that
1-6 months' notice is helpful. Section 283 of the Trade Act of 1974 urges firms moving
production facilities to other countries to provide 60 days' notice to employees (cited in U.S.
Congress, Office of Technology Assessment, 1986a).
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156 TECHNOLOG Y AND EMPLO YMENT
when the workshops were offered after layoff, participation dropped to
less than 20 percent (Berenbeim, 19861.
Statistical evidence on the effects of advance notice suggests in addition
that advance notice of shutdowns or layoffs is associated with shorter
spells of unemployment after these events. A study by Folbre et al. (1984)
of the impact of advance notice in Maine found, on average, that
unemployment in local labor markets in which plant closings were
announced in advance was lower than unemployment in regions that
experienced plant shutdowns without advance notice. The study also
found that providing at least 1 month's advance notice reduced the
average duration of unemployment per worker from 5 to 4 months.
Addison and Portugal (1987), who applied a model of unemployment
duration associated with advance notice to national data from the BLS
1984 displaced worker survey, confirmed Folbre et al.'s results, conclud-
ing that advance notice reduced the average spell of unemployment after
layoff by roughly 27 percent, or 4 weeks. Data in Flaim and Sehgal (1985)
suggest that advance notice of layoffs did not have a substantial impact on
the probability that a worker displaced during 1979-1983 was employed as
of January 1984. The data on which their analysis was based, however,
were flawed. They were drawn from the BLS 1984 survey of displaced
workers, which did not specify the period of advance notice. In addition,
because the survey asked whether workers received advance notice or
"expected" that layoffs were imminent, the methodology may have
introduced significant recall bias.
Because this evidence suggests that advance notice of plant closures
and large-scale layoffs increases the effectiveness of publicly supported
programs of worker adjustment assistance and reduces the average
duration of unemployment after layoff, advance notice may reduce the
costs to taxpayers of such actions. Plant shutdowns and large-scale
layoffs that occur without advance notice appear to impose substantial
additional costs on both workers and the public sector, by comparison
with situations in which notice is given. Such costs are "externalities,"
costs imposed on individuals and society that are not borne by the firms
closing the plant or laying off the workers. In other areas (e.g., health and
safety regulation, pollution controls), public regulations have been devel-
oped to ensure that a portion of these costs are also borne by the
organizations that contribute to them.
In addition to externalities, plant closures and layoffs in which workers
do not receive information available to managers concerning the immi-
nence of displacement may cause workers to make career decisions based
on defective or incomplete information. Hamermesh (1987) estimated that
plant shutdowns without advance notice impose an average cost on
workers (measured as the difference in the level of worker investments in
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CURRENT POLICIES FOR WORKER ADJUSTMENT 157
job-related skills for a specific employer in a situation in which notice is
provided and a situation in which it is not provided) of $4,50~$15,000.~3
Competitive markets function most efficiently when all of the actors in
them have equal access to information concerning their environment and
the consequences of their actions. The incentives for participants in
markets to disclose freely all information, however, often are minimal
strategic use or selective disclosure of information (as in the many recent
"insider trading" cases in securities markets) can prove extremely
profitable. The disclosure of relevant information to all parties to a
transaction or contract is one of the primary motivations for statutory and
regulatory control of securities markets, health and safety regulations,
and consumer protection regulations and laws.
Employers are often concerned about employee behavior and produc-
tivity after advance notice. Do employees facing permanent layoffs react
by sabotaging products or otherwise lowering productivity substantially?
There is widespread agreement among business and union leaders
(Berenbeim, 1986, p. 14; Driever and Baumgardner, 1984, p. 14; the
Secretary of Labor's Task Force on Economic Adjustment and Worker
Dislocation, 1986, p. 23; U.S. Congress, Office of Technology Assess-
ment, 1986b, quoting business and union participants in a workshop, p.
22) that advance notice does not lower worker productivity after the
announcement. Indeed, the recent study by Ronald Berenbeim for the
Conference Board reported that "all industrial plants studied [five] noted
improvements in quality and productivity in the final phase of the
facility's operations" (1986, p. 141. These results corroborate those of an
earlier study by Weber and Taylor (1963) of 32 plant shutdowns. The
productivity and quality improvements that occur appear to reflect the
reaction of employees to the evidence that management is concerned
about their welfare, the operation of counseling and job search programs
that begin prior to layoff, the resolution of anxieties and uncertainties, and
the desire of workers concerned about reemployment to demonstrate to
new employers that the quality of the work force in the closed plant was
high.
The evidence on the benefits of advance notice for worker adjustment
and the distribution of social costs, combined with evidence on its
productivity effects, has led a large number of employer organizations,
labor-management task forces, and public commissions to endorse
voluntary advance notice. Private sector groups endorsing advance
notice include the Business Roundtable (1983), the National Association
i3This cost measures only the loss in the value of workers' investments in such training
and ignores the loss of earnings associated with unemployment and the possibility that
reemployment will involve reductions in wages.
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158 TECHNOLOG Y AND EMPLO YMENT
of Manufacturers (1987), the National Alliance of Business (1987), and
the National Center on Occupational Readjustment (19841. Recent
public commissions, study groups, and officials endorsing advance
notice include the President's Commission on Industrial Competitive-
ness (1985), the Secretary of Labor's Task Force on Economic Adjust-
ment and Worker Dislocation (1986), and the Assistant Secretary of
Labor for Employment and Training (Semerad, 19871.
Despite this support for advance notice, however, many of these
groups oppose or have failed to endorse public actions to mandate
advance notice of plant closures and permanent, large-scale layoffs,
citing as justification the high costs and counterproductive employment
effects of mandatory regulations. The costs of mandatory advance
notice cited by these analysts include the additional burdens that these
regulations place on small firms, the impracticality of advance notice
under all circumstances in an economic environment characterized by
uncertainty and change, the need to preserve managerial discretion in
decision making, and the possibility that such regulations will raise the
costs of operating production establishments within the United States,
further encouraging the movement of production to offshore locations
and discouraging domestic job creation. As an example of the negative
effects of mandatory advance notice, analysts point to Western Europe,
where advance notice regulations are relatively common. Opponents of
mandatory advance notice cite these regulations as contributing to low
rates of job creation, due to their tendency to raise the costs of operating
a business. (See the National Alliance of Business, 1987, and Semerad,
1987; Balassa, 1984, presents related evidence on European job creation
and regulatory costs.)
There is little or no evidence that would allow a systematic estimation
of the magnitude or significance of these costs. Federal legislative
proposals to require advance notice of plant shutdowns and permanent
layoffs have accommodated several of these objections, typically ex-
empting small firms (those with fewer than 5~100 employees) and
allowing exemptions for "unforeseen circumstances." Although a num-
ber of Western European nations enforce mandatory advance notice
regulations, in many nations these are combined with requirements for
substantial severance payments to displaced workers, making a precise
comparison with the impacts of notification alone very difficult.~4
'4The report of the Subcommittee on the Foreign Experience of the Secretary of Labor's
Task Force on Economic Adjustment and Worker Dislocation (1986) has disputed the
argument that social regulations have contributed to low rates of job creation in Western
Europe, arguing that macroeconomic policies and inefficient nationalized industries, among
other factors, are more significant.
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CURRENT POLICIES FOR WORKER ADJUSTMENT 159
The primary issue in the debate over advance notice does not concern
its merits there appears to be widespread agreement that such notice
aids worker adjustment but the most elective way of ensuring its
widespread application at reasonable cost. A number of U.S. employers
(both union and nonunion firms) currently provide voluntary advance
notice of plant closures and layoffs to their employees. Evidence from a
recent national survey administered by the U.S. General Accounting
Office (1986, 1987b), however, strongly suggests that voluntary advance
notice is not functioning effectively few workers are receiving even 30
days' advance notice. The GAO survey data, which appear in Brown
(1987), suggest that 31 percent of the respondents provided no specific
notice of plant closure or layoff (i.e., informing workers in advance of a
specific date of layoff), 34 percent provided 1-14 days' notice, 15 percent
provided 15-30 days' notice, and 20 percent provided 31 or more days'
notice. On average, blue-collar workers received 7 days' notice and
white-collar workers received 14 days' notice.~5 In unionized establish-
ments, blue-collar workers received an average of 2 weeks' specific
notice; blue-collar workers in establishments without unions received an
average of only 2 days' advance notice of plant closure or lay of (U.S.
Congress, Office of Technology Assessment, 1986a; U.S. General Ac-
counting Office, 1986, 1987b).
i5The first set of survey results published by the General Accounting Office (1986) found
that 76 percent of establishments provided "general" advance notice, defined as notice to
groups of workers that some or all of them might be laid offin the future. "Specific" advance
notice was defined as telling individual workers of the date of their impending layoff. A more
restrictive definition of general advance notice was used by Brown (1987) who defined it as
notification of individual workers that layoffs or a plant closing were likely. Drawing on data
from the BLS Permanent Mass Layoff and Plant Closing Program (Secretary of Labor's
Task Force, 1986, Appendix C), which defined general advance notice as notification to
individual employees that they would be laid off, Brown found from a survey of establish-
ments employing 50 or more workers that only 36 percent of the establishments provided
general notice. The most recent tabulation of a more complete set of responses to the GAO
survey (U.S. General Accounting Office, 1987b) has eliminated any analysis of "general"
advance notice.
Representative terms from entire chapter:
advance notice
