Falling Down the Employment Chute

Every year, between 2 to 4 percent of workers in industrial economies are “displaced” from their jobs. While some of these workers lose employment due to trade, many more suffer disruption from other forces, such as automation and technological change, as well as the ebb and flow of global business cycles.

An enduring challenge for modern economies is how to cushion the blow for these workers and help them recover. Research from the OECD finds that the workers most likely to be displaced – the very young, the very old, and the less educated – are also the workers least equipped to manage economic upheaval successfully. This means that even in resilient and growing economies, displaced workers often need a hand to get back on their feet.

Climbing On the Employment Ladder

Countries designing a safety net for displaced workers must juggle a variety of competing concerns, such as how to make benefits generous enough to alleviate suffering while also avoiding disincentives for work. Another set of concerns involves what to demand of employers without losing dynamism and productivity. While limiting companies’ ability to fire workers can protect jobs, for example, it could also stymie the flow of labor to other parts of the economy where workers are needed or stifle innovations that make the economy more efficient. A third concern is the fiscal burden of an expansive social safety net and the tradeoffs that involves. While Denmark, for instance, spends 1.5 percent of its GDP on its famed system of “flexicurity,” its productivity and economic growth lag behind that of other OECD countries.

Much also depends on specific countries’ appetite for so-called “active labor market policies” – or the extent of government’s role in regulating the economy. Americans, for example, currently prefer the laissez-faire end of this spectrum versus a command-and-control approach.

Setting Rules in the Employment Game

Here are four strategies different countries have deployed to help displaced workers get back in the employment game.

1.Giving workers the right to advance notice if layoffs are coming.

A number of countries require firms to give advance notice of layoffs to their workers, such as a pending plant closure, so employees have time to retrain for new jobs, build up savings and take other steps to ready themselves for a job loss. In the United States, for example, the Worker Adjustment and Retraining Notification Act (WARN) requires all companies with more than 100 workers to provide at least 60 days’ notice of any plant closings or “mass layoffs.”

In Sweden, workers are entitled to at least six months’ advance notice of pending layoffs (and potentially up to a year, depending on collective bargaining arrangements).

2. Making it harder to fire workers.

Some countries go one step further to regulate not just when layoffs can happen but how and who. Sweden, for instance, imposes on firms a “last in, first out” (LIFO) rule on who gets let go first. It also sets rules on rehiring and internal reassignment within a company. The purpose of rules such as these is to discourage layoffs by making it costly for companies.

Another strategy for reducing the number of layoffs is to use a carrot, rather than a stick, by subsidizing the cost of keeping workers on payrolls during a downturn. Canada, for example, offers a “work sharing program” where workers can receive partial unemployment benefits if their employers need to cut back hours temporarily.

3. Helping workers train for and find new jobs.

Many countries provide displaced workers with training and job placement services so they can find new work as quickly as possible. The United States, for instance, operates a network of “American Job Centers” (also known as “one stop shops”) under the Department of Labor for workers looking for training or job help or applying for unemployment benefits. Sweden offers similar services through its “Job Security Councils” as does Japan through its program “Hello Work.”

Though the specifics vary by country, the suite of services available typically include resume writing help, counseling, access to free training and job search assistance. The effectiveness of these efforts varies widely as well. While Sweden’s Job Security Councils boast 80-90 percent placement rates within eight months and are an integral part of the country’s workforce development system, America’s one stop shops are not the first stop for most workers who lose their jobs. One reason for this is that Sweden’s system is the result of an expansive collective bargaining agreement among labor, business and the government that is also generously funded. American Job Centers, on the other hand, are an effort to coordinate a patchwork of disparate jobs programs created at different times and administered through various agencies.

4. Providing income support and other benefits to jobless workers.

Cash assistance to help replace lost wages is of course the most basic form of help that a government can provide to displaced workers. In the United States, for instance, workers can receive unemployment benefits for up to 26 weeks in most states, while Danish workers are eligible for benefits for up to two years. Some workers are also eligible for specialized benefits under targeted efforts, such as the U.S. Trade Adjustment Assistance (TAA) program, which offers a one-time $1,250 “job search allowance” as well as a one-time $1,250 relocation allowance for eligible workers. TAA, however, covers a relatively tiny proportion of the workers displaced every year.

Countries Cannot Afford to Roll the Dice

No country has perfectly solved the problem of worker displacement. Even in places like Sweden, where 85 percent of displaced workers find new work within a year, many workers end up in lower paid jobs than they had before. Placement rates are also not nearly as good for blue-collar and lower-skilled workers as they are for those in white-collar and highly-skilled professions.

Dissatisfaction with current strategies has led some policymakers to advocate for more comprehensive – and controversial – schemes, such as wage insurance, which would make up the difference in lost wages for workers who take lower-paying jobs; or “universal basic income,” which would essentially entitle all individuals to some subsistence level of cash support.

As the pace of technological advances intensifies, and with it the potential for economic disruption, the plight of displaced workers will also grab increasing attention. The choices countries ultimately make will reflect not just the fiscal and political constraints each nation faces but its values about the responsibilities government and businesses should bear for ensuring the welfare of individual workers.