Why the worker pessimism?

The rising feeling of insecurity among American workers seems to be a great anomaly in a period of unusually low unemployment. Sadly, this may be, at least in part, an example of the unintended consequences of government regulation.

Recent surveys show that many more workers - in absolute numbers and as a portion of the workforce - fear they will lose their jobs today than at the height of the 1981 recession. Back then, the unemployment rate was above 10 percent, while in recent months the rate has hovered around a low of 4 percent. Moreover, the average length of time employees have been holding their jobs (about 3-1/2 years) hasn't been declining during this period; the overall trend has been rather stable.

So what accounts for the rising feeling of job insecurity on the part of so many American workers?

Nobody knows for sure, but I believe that, in good measure, this sad situation is an artifact of well-intended labor legislation. In 1988, Congress passed the Worker Adjustment and Retraining Notification (WARN) Act. Among its many other provisions, the WARN Act requires employers generally (as in most regulatory legislation, there are numerous exceptions and special cases) to provide 60 days advance notice of layoffs involving 500 or more workers.

Under WARN, the penalties for failure to meet the notification requirements are severe. An employer who is in violation is liable to pay each "aggrieved employee" back pay and benefits for the full period of the violation, up to 60 days. In addition, an employer who fails to provide the required layoff notice to the local government is subject to a penalty not to exceed $500 for each day of violation.

As a result, it is not surprising that companies laying off 500 or more workers make sure that they provide sufficient notice. In some cases, the number of people actually laid off has been lower than the announcement (AT&T provided a dramatic example of that during the early 1990s). But, in view of the potential penalties, it is clear why employers would rather overestimate than underestimate the bad news.

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

Concern arises because there is no comparable legislation requiring employers to issue notifications of future hiring plans. The result is most uneven: The typical worker encounters dramatic announcements of job layoffs on the evening TV news and in the daily paper, but sees no comparable headlines proclaiming the creation of 16 million new jobs since 1990 (and a drop in the unemployment rate from 5.6 percent to 4.1 percent during the same period).

Reports of large layoffs typically are the subject of substantial media attention, often on the front page of the local newspaper, with follow-on dramatic interviews about the hardships that will be created. But the monthly reports by the Bureau of Labor Statistics typically informing us that employment rose and that the unemployment rate declined, if covered at all, are relegated to the paper's financial section.

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

Of course, Congress never intended to pass a statute designed to increase worker insecurity. But the law of unintended consequences appears to be thriving in the federal regulatory system.

*Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University.

(c) Copyright 2000. The Christian Science Publishing Society

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