Krueger on Lessons From the Chicago Sit-In and the WARN Act

Kreuger Alan Krueger, the Princeton economist, has this commentary in the New York Times on the recent sit-down strike at the Republic Windows plant in Chicago and the WARN Act:

The sit-in at the Republic Windows & Doors factory in Chicago last week brought the Worker Adjustment and Retraining Notification Act of 1988 — or WARN Act for short – to the forefront of attention. This law requires large employers (those with 100 or more employees) to provide 60 days of written advance notice prior to a plant closing or mass layoff.

The WARN Act was passed after a long-running, rancorous debate. President Ronald Reagan vetoed a trade bill because it included provisions of the WARN Act. The WARN Act was later reintroduced as a stand-alone measure and passed by Congress with enough votes to override a presidential veto in July 1988. The WARN Act became law without President Reagan’s signature, and he issued a statement calling the law “counterproductive.” . . .

The economics of the WARN Act are relatively straightforward. More information usually makes markets work more efficiently. If employees are notified that they will lose their jobs in the future, they can start searching and preparing for a new job sooner. Communities and social-service providers can also prepare for a wave of unemployed workers sooner rather than later.

From a company’s perspective, however, advance notice of a pending shutdown can cause it to lose valued employees and customers before it shutters its doors . . . .

But the bigger picture of this saga should not be missed: companies frequently close without giving their employees the required 60 days of advance notice.

A seminal study by John Addison and McKinley Blackburn found that displaced workers were hardly more likely to receive 60 days’ advance notice of a layoff after the WARN Act took effect than they were before it went into effect . . . . .

Like so much in the labor area, as a practical matter the heated battle over the WARN Act became much ado about nothing. Relatively few additional workers were warned about pending layoffs and plant closings as a result of WARN. Indeed, the available evidence makes one wonder why so many employer groups fought so hard to oppose the law if it ultimately turned out to hardly affect the way employers operated.

This commentary made me somewhat miffed.  I have three preliminary thoughts in reply:

1.  If it is true that WARN is either not applicable to most plant closings and mass layoffs and is violated frequently, does that mean the law was “much ado about nothing.”  I more likely conclude that the employee threshold of 100 employees should be reduced to somewhere between 25-50 employees and perhaps the definition of “mass layoff” should be less restrictive.  Also, there might be more enforcement actions if there were better remedies available, including the right to compensatory and punitive damages in appropriate cases.

2.  Like most economists (I feel comfortable making this generalization since he feels comfortable lumping all labor laws together), Kreuger puts most of his emphasis on “efficiency,” without thinking much about non-quantifiable matters like justice and fairness.  In a plant closing/mass layoff situation, I tend to be much more concerned about the economic well-being of the workers, as opposed to whether the company in question will lose some additional quantum of profit or productivity in the interim.

3.  And finally, the fact that President Reagan found the law enacted over his veto “counterproductive” (of course, he felt that way strongly about the entire labor movement and crushed the PATCO air traffic controllers strike for good measure), seems alone to recommend its bona fides as a law concerning social justice and one which was rightly fought over.

If Professor Kreuger wishes to explain his dismissive comment that much labor law legislation is “much ado about nothing,” I would be happy to have that debate with him.

Cross posted at Workplace Prof Blog.

This Post Has 2 Comments

  1. Sean Samis

    In the context of the “economics of the WARN act,” “efficiency” may be the relevant consideration. However, Mr. Krueger’s statement cannot be assumed to assert a universally applicable emphasis on his part; it does not exclude that he might value other concerns appropriately. Perhaps Krueger’s focus is mostly on “efficiency,” but the above comment cannot be assumed to be representative of his general views.

    If the WARN Act is as ineffective as reported, then the battle over it was indeed “much ado about nothing.” Which is not to say justice and fairness are unimportant, but that the battle over the WARN Act was pointless because it resulted in an ineffective law. Mr. Krueger’s remark encompasses the battle employers put up AGAINST passage of the act, even though the Act turned out to make little difference to them. Perhaps the point of their fight was to make the Act’s supporters lose perspective and not realize the Act was largely futile. How sneaky . . . !

    The battle FOR the Act would have been more meaningful if it were a struggle to make the Act effective; a fight worth renewing now that we know the Act in its current form is not working as needed or expected.

  2. Bruce Boyden

    I’m curious about the Addison-Blackburn findings. The only time I encountered the WARN Act in practice, the employer was taking it very seriously (that’s why we were involved). I’m curious if there’s a difference between partial layoffs where the company is still a going concern and a complete shutdown. In the latter case, it may be that the sanctions, whatever they are, are not effective because there’s no one to enforce them against.

    Also, re: point 2, it all depends on how you define efficiency. If you define it to include as efficiency harms the social and personal turmoil that comes from being unemployed, then your “non-quantifiable” factors get folded into the mix, at least in some form. I’m not sure Krueger is excluding that stuff, since he mentions the difficulty of finding a new job.

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