Peter Frederiksson, Uppsala University
”Mandatory Advance Notice of Layoff: Evidence and Efficiency Considerations”
Abstract
We examine the consequences of mandatory advance notice (MN) of layoff. Theoretically, we show that MN can improve efficiency since it forces the employer to share information about future demand reductions with its employees. A crucial component of this efficiency argument is that inefficient MN can be avoided by the firm paying “severance” to the worker. Using discontinuities in the length of MN, we show empirically that firms engage in such side-payments. Workers who are eligible for longer notice (because they just surpassed an age threshold) are thus paid more severance. We also show that a longer notice period renders less exposure to unemployment and higher wages upon re-employment. Higher severance, lower non-employment, and higher wages imply higher earnings in the year after layoff (contributing 30%, 50%, and 20% of the earnings increase, respectively). Moreover, we show that workers who are eligible for higher unemployment benefits receive lower severance payments.
Peter Fredriksson's research interest is labor economics, broadly defined. He has published in journals such as the Quarterly Journal of Economics, Economic Journal, Journal of Labor Economics, AEJ: Applied Economics, and the Journal of Human Resources. He is a member of the Royal Academy of Sciences and the Prize Committee for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.