Displaced Workers: US Policy & Reemployment

American employment policy's initial response to worker displacement began during the Great Depression. The focus was on providing a safety net for those who had lost their jobs. Programs offered included assistance from the employment service, unemployment insurance, work experience opportunities, and initiatives for direct job creation. These early interventions laid the groundwork for future policies aimed at assisting those who had lost their jobs due to economic downturns. The approach was largely reactive, responding to immediate needs created by widespread joblessness. The system's foundation was built on the principles of providing immediate support and helping individuals find new employment. This period is marked by a direct, hands-on approach of the government in mitigating the effects of job losses during crisis. The basic structure of unemployment benefits and employment services was established during this time.

Assistance for workers displaced by foreign competition emerged as a key policy concern in the 1960s. This marked a shift from solely addressing general economic downturns to explicitly addressing job displacement resulting from international trade. Alongside this development came the formalization of occupational job skill training programs. The recognition of the need for retraining and upskilling of displaced workers became more prominent during this era. These initiatives started to address not only the immediate financial needs but also the need to ensure displaced workers could adapt to changing economic circumstances and find new employment in related fields. The government's role started to shift to not only provide temporary support but to also invest in longer-term solutions.

The 1980s witnessed a significant strengthening of policy focus on displaced workers. Landmark legislation like the Worker Adjustment and Retraining Notification (WARN) Act and the Economic Dislocation and Worker Adjustment Assistance Act significantly improved protections for workers facing job loss. The WARN Act, in particular, introduced requirements for advance notice of plant closures and mass layoffs, affording workers time to prepare for job transitions and seek alternative employment. These acts aimed at creating more transparency and allowing workers and communities to better prepare for impending job losses. Field experiments began to systematically evaluate the effectiveness of various services provided to those who had lost their jobs, and evidence was gathered to determine what strategies were most impactful. This data-driven approach was critical in refining policy. The North American Free Trade Agreement (NAFTA) also impacted policy, introducing rules permitting UI benefit receipt while starting self-employment, demonstrating an evolving understanding of the changing nature of work.

A key element of more recent employment legislation involves sunset clauses (expiration dates) and systematic evaluation requirements. These elements are integral to ensure program effectiveness and inform future policy decisions. Nascent performance measurement systems, emerging from programs like CETA, were formalized under the Job Training Partnership Act (JTPA) of 1982. The JTPA’s implementation coincided with significant public anxiety about permanent job loss resulting from economic restructuring, largely influenced by Reagan-era tax policy changes. The introduction of these evaluations reflected a need for accountability and evidence-based policy-making. This shift towards data-driven decision-making was a crucial move in the evolution of these policies. The insights gleaned from these assessments allow for more precise and efficient future allocation of resources.

Research has significantly advanced the understanding of the consequences of worker displacement. Ashenfelter (1978) identified a noticeable decline in earnings in the months leading up to permanent job loss, now known as the ‘Ashenfelter dip.’ This finding highlighted the economic vulnerability of workers even before their actual job loss. Subsequent research, such as the study by Jacobson, Lalonde, and Sullivan (1993), using UI earnings records of Pennsylvania workers (many affected by steel industry restructuring), revealed that permanent job loss resulting from plant closings or mass layoffs reduced future earnings by approximately 25 percent. This research emphasized the lasting detrimental effect that job displacement can have on individuals' financial stability. The long-term, negative impact extends beyond individual workers; it also significantly affects local communities through the loss of jobs and income. These economic repercussions can persist for decades, underlining the importance of addressing displacement effectively.

The economic recession in the United States, starting in December 2007 and lasting until October 2009, led to a dramatic surge in unemployment. The number of unemployed Americans more than doubled, rising from 7.5 million to 15.7 million. Concurrently, the monthly unemployment rate climbed from 4.9% to 10.2% of the labor force. This rapid escalation in job losses occurred within an exceptionally short timeframe, exceeding the severity and speed of all but one previous period since 1948 – the 1982 recession which reached a 10.8% unemployment rate but over a significantly longer duration. The sheer scale and rapid pace of unemployment during this period highlighted the severity of the economic crisis and underscored the urgent need for effective policy interventions to address the crisis and its impact on millions of American workers.

The Great Recession's impact on the job market revealed a significant shift in the nature of job losses compared to previous recessions. While in prior downturns, temporary furloughs often preceded employer recalls, the Great Recession witnessed a surge in permanent layoffs and plant closures. This marked a change from cyclical unemployment to a more structural shift, reflecting profound changes in the industrial landscape. The increase in permanent job losses underscored a fundamental change in the economy, as businesses undertook permanent restructuring rather than temporary cost-cutting measures. The 1980s had already seen the start of this trend, with permanent industrial restructuring accelerating in subsequent years. Manufacturing plant closures and mass layoffs proliferated during this decade, foreshadowing the pattern that became more prominent in the 2007-2009 recession. The availability of credit also played a critical role, with the sudden unavailability of credit forcing businesses to make drastic decisions about their workforces.

The dramatic rise in unemployment translated into a substantial increase in unemployment insurance (UI) claims. Weekly UI claims averaged 322,000 from 2005 to 2007, but rose to an average of 577,000 per week in the 52 weeks between October 2008 and October 2009. In the week before Barack Obama's inauguration, a staggering 956,791 Americans filed new UI claims, illustrating the enormity of the job losses. This surge in claims significantly increased the financial burden on the unemployment insurance system. This crisis prompted President Obama to prioritize a renewed focus on employment policy, and job training programs were given considerable attention by the federal government. The high level of job losses necessitated immediate action from the government, thus necessitating a policy response that would address the issue quickly and effectively.

The speed and scope of job losses during the Great Recession led analysts to consider whether this recession differed significantly from previous ones. Erica Groshen (2009) of the Federal Reserve Bank of New York suggested that, in contrast to deeper recessions that tended to be more cyclical, the current recession exhibited a more widespread diffusion of job losses across various industries. This implied that a higher proportion of job separations were likely to be permanent layoffs rather than temporary ones. The previous recessions were often characterized by gradual increases in interest rates implemented by the Federal Reserve, whereas the 2007-2009 crisis was driven by a near-total absence of credit availability to businesses. This lack of access to credit exacerbated business difficulties, leading to swift and extensive layoffs.

The federal-state UI system in the United States serves as a crucial safety net, providing temporary partial income replacement to workers involuntarily separated from their jobs. This system is designed to support individuals with strong labor force attachments who have experienced unforeseen job loss. Beyond direct financial assistance, the UI system has broader macroeconomic goals. It aims to maintain aggregate purchasing power within the economy, preventing a sharp decline in consumer spending during economic downturns, thereby acting as an automatic stabilizer. Another objective is to strengthen worker-employer relationships through experience rating of employer UI taxes for benefit financing. This element incentivizes employers to maintain stable employment, reducing the frequency of layoffs and promoting long-term workforce relationships. However, research indicates that the availability of UI benefits can sometimes lengthen unemployment durations, a trade-off that needs to be considered in the context of the system's multiple objectives.

The effectiveness of the UI system as a macroeconomic stabilizer is influenced by the proportion of unemployed workers who receive benefits. While the UI system has expanded its coverage over time—for example, 1972 reforms included non-profit and government agency employers—the ratio of insured to total unemployed has declined significantly. This ratio dropped from 86% in 1960 to 43% in 2008, a decrease largely observed throughout the 1960s and 1970s. This decline diminishes the UI system's capacity to inject spending into the economy during economic downturns, reducing its effectiveness as an automatic stabilizer. The decrease in UI benefits as a percentage of Gross Domestic Product (GDP) further illustrates this trend. However, the recent recession showed a relative increase in UI's share of GDP due to increased beneficiaries and extended benefit durations. This highlights the system's crucial role in cushioning the blow of economic shocks, even with its limitations in terms of overall reach.

The financing of regular UI benefits relies primarily on employer payroll taxes in most states, with some states including employee taxes as well (Alaska, New Jersey, and Pennsylvania). The cost of providing UI benefits necessitates careful management of program resources. For example, shorter average benefit durations allow more people to be served under a given tax burden. In the 12 months ending in April 2009, regular UI benefit payments totaled $56.6 billion with an average duration of 15 weeks. A reduction of just one week in the average benefit duration would save approximately $3.75 billion. This demonstrates a potential trade-off between maximizing the number of individuals who benefit from the system and the overall fiscal efficiency of the program. During the recent recession, federally financed UI benefit extensions significantly increased the maximum potential duration of benefits in some high-unemployment states, to as much as 79 weeks, highlighting the government's willingness to intervene significantly during times of acute economic stress.

The Illinois Reemployment Bonus Experiment, conducted by Woodbury and Spiegelman (1987), serves as a notable example of the potential effectiveness of reemployment bonuses. This experiment involved providing lump-sum payments to unemployment insurance (UI) recipients who secured new, full-time employment within a specific timeframe (6-12 weeks) and maintained that employment for a minimum duration (3-4 months). The results were striking: the experiment demonstrated a reduction in the duration of UI-compensated unemployment by 1.15 weeks. This reduction proved so substantial that the reemployment bonus program was deemed cost-effective for the UI Trust Fund, achieving a benefit-cost ratio of 2.32. Importantly, participants did not experience a reduction in post-unemployment wages, indicating that the bonus did not compromise job quality. This successful outcome highlights the potential of carefully designed reemployment bonuses as a tool to expedite the return to work for unemployed individuals, without negative impacts on long-term earnings or job quality.

Further experiments conducted in Pennsylvania and Washington explored various levels and durations of reemployment bonus offers. These experiments tested benefit levels above and below the amount used in the Illinois experiment (4 times the weekly benefit allowance, or WBA), as well as varying qualification periods. The Pennsylvania experiment had four treatment groups while the Washington experiment had six. The diverse design allowed for a comprehensive analysis of different bonus structures. While half of the ten treatments across both states proved cost-effective from the perspectives of claimants, society, and the government, only two were cost-effective specifically for the UI system. This suggests that while bonuses can be beneficial, careful consideration of their design is crucial to maximize their effectiveness and ensure fiscal responsibility. The less impactful results compared to Illinois led to a re-evaluation of the Illinois results, revealing an unintended second experiment due to the termination of Federal Supplemental Compensation (FSC) in Illinois, influencing the initial highly positive results.

Research by O'Leary, Decker, and Wandner (2005) investigated the potential for improving the cost-effectiveness of reemployment bonuses by targeting them to UI claimants most likely to exhaust their benefits. They explored the use of profiling models similar to those utilized in state Worker Profiling and Reemployment Services (WPRS) systems. While targeting did improve cost-effectiveness to some extent, the study found that narrowly targeting the offers wasn't optimal. The most effective strategy appeared to be offering a low bonus amount with a long qualification period, targeting only the half of profiled claimants most likely to exhaust their benefits. This highlights the importance of strategic targeting and tailoring of the bonus programs to maximize their impact while minimizing unnecessary expenditure. This approach seeks to balance the provision of incentives for swift reemployment with cost-effectiveness for the UI system.

The Worker Adjustment and Retraining Notification (WARN) Act, enacted in 1988 and effective in 1989, mandates advance notice for plant closures and mass layoffs. This legislation aims to mitigate the negative impacts of sudden job losses on workers and communities by providing them with time to prepare for the transition. The act mandates a 60-day advance notice for employers with 100 or more workers, defining mass layoffs as either over 500 layoffs or at least 50 layoffs if they represent one-third or more of the workforce. Plant closings are subject to the WARN Act if they involve the loss of at least 50 jobs within a 30-day period. Notification requirements extend to workers, local government officials, and the state's dislocated worker adjustment unit. This legal framework aims to promote a more orderly and less disruptive process for workers facing job displacement, providing them with crucial time to adjust and plan for their future.

A General Accountability Office (GAO) study in 2003 revealed that despite the WARN Act's existence, a significant portion of mass layoffs remained unaddressed by its provisions. The study found that 1.75 million workers experienced job losses through extended mass layoffs in 2001, resulting from 8,350 plant closures and mass layoffs; however, only about one-quarter of these events met the WARN Act's notification requirements. This highlights a significant gap in the act's enforcement and suggests a need for greater awareness and compliance among employers. The GAO report recommended that more emphasis be placed on educating employers about their responsibilities under the WARN Act and on clarifying employees' rights related to these situations. This gap in enforcement points to a key challenge in implementing the WARN Act's intended goals of minimizing the disruptive effects of layoffs on workers and their communities.

Research has examined the impact of advance notice on local area unemployment rates and labor force size. Folbre, Leighton, and Roderick's (1984) study analyzed the effects of major plant closings (involving over 100 workers) in Maine before advance notice became mandatory. They analyzed 107 such closures between 1971 and 1981, impacting a total of 21,225 workers directly, with a ripple effect influencing 49,219 Maine workers. Their findings showed that when firms voluntarily provided at least one month's advance notice, the impact on the local area unemployment rate in the month of the closure was significantly diminished. This underscores the positive effects of providing advance warning, allowing workers and communities to adjust more effectively to job displacement and potentially lessen the economic fallout of these events. The study supports the principle behind the WARN Act, that prior warning can provide a crucial buffer against negative economic consequences following mass layoffs and plant closures.

Job Search Assistance (JSA) comprises a range of services offered through public employment services to aid unemployed individuals in their job search. These services typically include resume preparation assistance, participation in job finding clubs, access to specific labor market information, help in developing a personalized job search plan, and orientation to self-service resources (such as online job boards and resume-building tools). Job search workshops (JSWs) are often considered a distinct component of JSA. Evaluations of JSA have predominantly used field experiments with random assignment to assess the effectiveness of these services. These studies often focus on unemployment insurance (UI) claimants, as they are a readily available population to study, and usually involve supplementing existing services, rather than evaluating core services. Because withholding basic services from a control group is unethical, the impact of job referrals and placements are typically not studied with this methodology.

The concept of targeting JSA emerged during the 1990s as a response to widespread economic restructuring and significant worker dislocation during the preceding decade. Earlier research had established JSA's cost-effectiveness in facilitating reemployment. However, the effectiveness of JSA for individuals at risk of long-term unemployment prompted a major field experiment in New Jersey (Corson et al., 1989). The findings from the New Jersey experiment, combined with prior evidence, provided strong support for the development of the Worker Profiling and Reemployment Services (WPRS) system. The WPRS system was designed to implement targeted JSA, focusing resources on individuals most likely to experience prolonged unemployment spells. This targeted approach sought to optimize the use of resources and improve the overall effectiveness of job search assistance efforts. The WPRS system involved the development of profiling models to predict which UI claimants needed these services, to then refer them accordingly.

A significant evaluation of the WPRS system was conducted in Kentucky (Black et al., 2001), utilizing data from the program's implementation between October 1994 and June 1996. The study used a randomized controlled trial design to assess the effects of mandatory WPRS JSA. This involved creating experimental and control groups, ensuring that the characteristics of participants in each group were statistically similar. A total of 1,981 claimants participated, with 1,236 assigned to mandatory WPRS JSA, compared to a control group. The study carefully considered the counterfactual—the situation without the intervention—recognizing that control group members might still receive some employment services available in the community, not specifically funded by the WPRS program. This approach helped determine the program's incremental impact on reemployment outcomes, above and beyond any community-based services. The focus was on measuring the additional benefit of the program above and beyond community supports.

The Job Training Partnership Act (JTPA), enacted in 1982, provided a significant opportunity to evaluate the effectiveness of job training programs for displaced workers. Congress mandated a rigorous evaluation using a randomized controlled trial design, establishing a gold standard for assessing the program's impact. The experimental evaluation under the JTPA revealed positive, yet modest, effects on both employment and earnings. These effects, however, were not uniform across all participant groups, varying significantly by factors such as gender, economic status, and the specific method of training delivery. Notably, women tended to respond more favorably to training compared to men, demonstrating a nearly 7 percentage point higher earnings gain after 30 months for women than men. This disparity highlights the importance of considering gender-specific factors when designing and implementing job training programs. Adult women receiving welfare and young women also showed positive responses, though the latter weren't statistically significant.

The Workforce Innovation and Opportunity Act (WIA), the successor to the JTPA, has been in effect for over a decade, yet it lacks a similarly rigorous experimental evaluation utilizing random assignment. This contrasts sharply with the mandatory evaluation requirements of its predecessor. This absence of a comprehensive, randomized controlled trial makes it challenging to definitively assess WIA's overall effectiveness in the same way as the JTPA. While there is evidence suggesting that job training under WIA has been effective, especially in raising employment rates and generating higher earnings, these results often derive from non-experimental studies, which can be affected by numerous confounding variables. Dislocated workers receiving WIA training gained an average of $386 per quarter, with men gaining $357 and women $422. Despite the substantial investment in WIA, this lack of rigorous evaluation data represents a key limitation in understanding its long-term efficacy and informing policy improvements.

Self-employment initiatives for unemployed individuals have been in place in Europe since 1979. Seventeen Organisation for Economic Co-operation and Development (OECD) countries have adopted programs based on either the French model or the British model. The French model provides a lump-sum payment to unemployed individuals planning to become self-employed. The British model, conversely, offers a series of periodic support payments during the startup phase of a self-employment venture. This model effectively waives the usual work search requirements for continued unemployment compensation payments. These different approaches reflect varying policy priorities, with the French model prioritizing upfront capital and the British model emphasizing ongoing support during the often challenging initial stages of a new business. American experiments have recently tested both models, in Washington State (French model) and Massachusetts (British model), adapting European experience to the U.S. context.

Wage subsidies and wage supplements represent distinct approaches to incentivizing employment. A wage subsidy is a payment directly to an employer to partially offset the wage costs of a newly hired employee. Wage supplements, conversely, are payments made directly to the worker. While there's less evidence on wage supplements, existing data on wage subsidies suggests that supplements might be a more effective approach. The main advantage of wage supplements is their reduced likelihood of creating stigma, a concern often associated with wage subsidies. Employers may perceive workers receiving wage subsidies as less desirable hires, believing that they may possess characteristics that hindered their ability to secure employment without the subsidy. The success of the Earned Income Tax Credit (EITC), paid directly to working families without employer knowledge, suggests that direct wage supplements can be effective without incurring negative employer perceptions.

The Minnesota Emergency Employment Development (MEED) program (1983-1989) provides a real-world example of a wage subsidy program. Approximately 45,000 people participated in MEED, receiving wage subsidies of up to $4 per hour (roughly $10 in 2008 dollars) for employers who hired them. A significant portion of participants (60%) were hired by private-sector businesses. The program demonstrated notable success in job retention; 80% of those hired through MEED remained employed for at least 60 days after the six-month subsidy period ended. Overall, 49% of the 30,547 participants secured permanent unsubsidized jobs after the program concluded. Among those placed in private-sector firms, 83% were still employed 60 days after subsidies ended. The MEED program cost approximately $25,000 per new job created, offering a point of comparison to more expensive strategies for attracting new employers. The program’s high rate of success in moving people into long-term unsubsidized employment is significant.

The document emphasizes the importance of connecting unemployment insurance (UI) recipients with employment services to facilitate reemployment. Studies demonstrate the value of requiring active job search by UI beneficiaries and linking UI benefits to employment services. Two notable examples are Reemployment and Eligibility Assessment (REA) programs and a Wisconsin reemployment demonstration in One-Stop Career Centers. Both initiatives strengthened work search enforcement and improved linkages to reemployment services. The REA initiative, a U.S. Department of Labor demonstration project with a $20 million budget, involved 21 states in 2005. Evidence from Minnesota suggests that REAs reduced the duration of UI benefit receipt by 1.2 weeks (Benus et al., 2008). This success highlights the value of integrating UI benefits with active job search support to reduce unemployment durations.

The document points to the increasing use of targeted reemployment services, focusing on those most likely to exhaust their UI benefits. Technological advancements in UI claims processing have reduced direct interaction between UI staff and claimants, limiting work test monitoring and referrals to services. However, the Worker Profiling and Reemployment Services (WPRS) system has expanded referrals to services for high-risk individuals. The American Recovery and Reinvestment Act of 2009 (ARRA) provided states with guidance on implementing these targeted approaches. The USDOL (2009) recommendations for targeting reemployment services align with the principles of the WPRS system, the Frontline Decision Support System (FDSS), and the Service Outcomes and Monitoring System (SOMS). This targeted approach seeks to optimize the allocation of resources to individuals most likely to benefit from intensive support.

The document highlights federal initiatives aimed at stimulating labor demand. These include payroll tax exemptions for employers on Social Security taxes (6.2%) paid to newly hired unemployed workers, and employer tax credits of up to $1000 per worker (conditions apply). To qualify, the new employees must have been unemployed for 60 days prior or worked fewer than 40 hours during that period. The dynamic nature of the American labor market—with roughly one-third of jobs filled annually—is emphasized as an important consideration for policy. The discussion also suggests that future policy might expand on these initiatives, explore work-sharing arrangements, and possibly expand the use of wage supplements. The inherent dynamism of the labor market and the need for adaptable and targeted policies are highlighted as crucial elements for future policy development.