Worker displacement in general, as well as displacement caused by plant closings in particular, takes place constantly and has a number of causes.⁹⁹ Causes can include employer responses to economic concerns such as changes in factor prices, changes in market demand, import penetration, overcapacity, plants reaching the end of useful life, or new technology requiring new plant design, or they can include changes in public policy such as cutbacks in a heavily government-funded industry.

This study is not concerned directly with such natural market-driven or public policy reasons for plant closings. The focus of the study is the use of plant closings and threats of plant closing by employers to subvert the right of workers to form unions. However, it is important to establish a larger economic and social context for considering plant closings.

Data in this section also provide an indication of when displaced workers were forewarned of their displacement. The sudden closing of a plant, regardless of the reason, can create serious adjustment problems for individuals, communities, and government institutions. Therefore, the issue of the "suddenness" of a plant closing is a key consideration in this part.

Displacement and Plant Closings in the United States

Plant closings have had a significant effect on employment in the United States over the past 2 decades. This effect has become even more important in the 1990s. The Bureau of Labor Statistics (BLS) in its biennial Displaced Worker Survey (DWS) found that over the period January 1991 to December 1993, nearly 9.2 million workers were displaced (Table 9). From January 1993 to December 1995, more than 9.3 million workers were displaced, evidence of a continuing phenomenon (Table 10).

Although various causes were listed, the primary cause of worker dislocation according to the survey results was plant closings.¹⁰⁰ Close to 3.6 million workers (39 percent of all displaced workers) lost their jobs because of plant closings in the 3-year period covered by the first survey, and 3.4 million (36 percent of all displaced workers) in the 3-year period covered by the most recent survey. Of those displaced, non-unionized workers made up the majority of those displaced as a result of plant closings, totaling more than 3.0 million workers (86 percent of those displaced by plant closings)¹⁰¹ from 1991–1995, and 2.9 million workers (86 percent of those displaced by plant closings) from 1993–1995.

Another recent survey conducted by BLS provides additional though less comprehensive data on displaced workers. The mass layoffs survey provided data for the fourth quarter of 1995 and the first quarter of 1996 and found that 270,598 and 232,713 workers were separated from their jobs in those two periods, respectively. Closure of work sites was responsible for 67,500 (25 percent) and 70,300 (25 percent) respectively of all workers laid off during that period. Unlike the DWS, the mass layoff survey covered layoffs of at least 31 days that involved 50 or more workers from the same establishment.

An important aspect of the effect of plant closings on workers in general is the ability of these workers to be reintegrated into the labor force. Social programs designed to provide a bridge for workers while they find new employment, or to provide training and readjustment services, are most helpful when they are able to respond in a timely way to dislocations. Therefore, dislocations that happen in a sudden and unplanned way can be more taxing on the social programs designed to assist workers.

The DWS found that nearly 2.0 million workers (55 percent) in the first survey period and 1.7 million workers (50 percent) in the second survey period were given no advance notice that they were to be displaced because of plant closings. Sudden plant closings make the adjustment process more difficult for individuals, families, and institutions charged with helping these workers reintegrate into the labor force. Of those who were given advance notice, only 611 thousand (40 percent) in the first period and 703 thousand (43 percent) in the second period were warned more than 2 months in advance. The existence of a union at the company being closed seemed to improve the likelihood of receiving advance notice. Approximately 182 thousand unionized workers (42 percent) in the first period and 154 thousand unionized workers (36 percent) in the second period were displaced because of plant closings with no advance notice; compared to nearly 1.8 million non-unionized workers (57 percent) and more than 1.5 million non-unionized workers (52 percent) who were displaced because of closings (Tables 9 and 10).

Table 9. U.S. Workers Displaced Because of Plant Closings in the United States, January 1991–December 1993 (in 1,000s)

Source: U.S. Bureau of Labor Statistics, Current Population Survey, 1994. Revised, 1996.

Table 10. U.S. Workers Displaced Because of Plant Closings in the United States, January 1993–December 1995 (in 1,000s)

Source: U.S. Bureau of Labor Statistics, Current Population Survey, 1996.

Of those who were displaced because of plant closings, 2.4 million in the first period (67 percent) and 2.4 million in the second period (71 percent), were re-employed. Approximately 664 thousand (27 percent) in the first period and 459 thousand (18 percent) in the second period were still looking for work. Approximately 517 thousand in the first period (21 percent) and 507 thousand in the second period (20 percent) had left the labor force, i.e., stopped looking for work, for a number of reasons. In the first survey period, approximately 1.1 million (47 percent) of those displaced by plant closings who found a new job received unemployment benefits (Table 11). That number was 1.0 million (41 percent) in the second survey period (Table 12).

Table 11. Unemployment Benefits of U.S. Workers Displaced Because of Plant Closings, January 1991–December 1993
(in 1,000s)

Source: U.S. Bureau of Labor Statistics, Current Population Survey, 1994.

Table 12. Unemployment Benefits of U.S. Workers Displaced Because of Plant Closings, January 1993–December 1995
(in 1,000s)

Source: U.S. Bureau of Labor Statistics, Current Population Survey, 1996.

A similar study of displaced workers in the decade of the 1980s was conducted by the U.S. Congressional Budget Office (CBO). That study found that approximately 73 percent of all workers displaced in the 1980s found new jobs.¹⁰² However, almost half of those who were re-employed were paid less than they received at their old job. Whether they were re-employed at the time of the survey or not, most workers displaced in the 1980s experienced an extended period of unemployment, with an average duration of joblessness of 30 weeks. The average displacement from 1981–1990 was roughly 2.0 million per year, compared with an average of 3.0 million for the 1991–1993 period. Since questions on unionization were not added to the BLS survey until the 1994 survey, no data are available in the CBO study regarding whether unionized workers fared differently than non-unionized workers.

Displacement and Plant Closings in Canada

Data recently released from the Canadian Survey of Labour and Income Dynamics (SLID) provide some insight into the displacement phenomena in Canada. The SLID was conducted in 1993 and provides information on displaced workers in Canada (Table 13).

Table 13. Job Separation in Canada, 1993–1997—Covered by a Collective Agreement

The SLID found that of the 4.6 million Canadian workers displaced from their jobs during the survey period, 1,062,200 (23 percent) had been displaced because their plants or companies moved, shut down, or had layoffs and business slowdowns.

The Canadian government also collected data similar to the above in the 1990 Labour Market Activity Survey (LMAS). According to a study by Statistics Canada, permanent layoffs have been above one million workers since 1981, during both peak and trough periods of the business cycle, suggesting displacement is acyclical.¹⁰³ During 1988–1990, the LMAS also found the following characteristics among displaced workers: most were non-unionized, young, working in low-wage jobs, and held their jobs for less than a year. The survey found mixed results with respect to how long displaced workers took to be re-employed and how much they earned in their new jobs. Half of the males displaced between 1988 and 1990 started new jobs within 12 weeks; however, 5 percent of males were unemployed for 1 year before starting a new job. The median period of joblessness for men was approximately 12 weeks. Nearly half of all displaced workers experienced losses in earnings in their new jobs.

An important finding of the survey that is relevant to this study is the difference between the rate of unionization among displaced workers and workers in the total labor force. As Table 14 illustrates, non-unionized workers were overrepresented among both men and women who were displaced in 1990. The LMAS did not address causality. However, it is an important factor in analyzing the effect of plant closings and displacement on unionization issues.

Table 14. Distribution of Displacement by Union Status in Canada, 1990

Source: Labor Market Activity Survey, 1990, Statistics Canada.

Displacement and Plant Closings in Mexico

Information from the Mexican Social Security Institute (IMSS) indicates that 5,794 workplaces were dropped from the registry in 1995, affecting more than 300,000 workers.¹⁰⁴ This reflects developments in the formal sector for firms that register with the Social Security system. No data are available on the total number of workers displaced in Mexico. The number of unemployed Mexican workers who left their job involuntarily is the closest estimate available. Those data are discussed next. Mexico has not undertaken a specific survey monitoring how displaced workers fare with regard to re-employment and earnings in a new job. Since there is no unemployment insurance program in Mexico, the length of time displaced Mexican workers spend unemployed is likely to be lower than that in the United States and Canada. However, no data are available to confirm this. Overall, duration of unemployment is much lower in Mexico compared with Canada and the United States, suggesting that the lack of unemployment benefits reduces the duration of joblessness.

Alternate Comparative Measures of Displacement in North America

The only comparative data on displacement in the three countries come from unemployment statistics. As Table 15 illustrates, involuntary job losers make up between 40 and 70 percent of all unemployed workers in the three NAFTA countries. Canada seems to be hardest hit by involuntary job loss. These data reflect displacement at a very broad level, covering workers who lost their jobs involuntarily for a number of reasons, including plant closings.

Table 15. Job Losses^a in North America
(in 1,000s)

a This term includes only workers involuntarily unemployed who are not new entrants to the labor force.

^b For Mexico, these figures represent only urban areas. Estimates are based on the National Urban Employment Survey, which covers 92 percent of the urbanized population and none of the non-urban population.

Impact of Plant Closings on Workers

Workers who are displaced are often unemployed for long periods of time, and when they do find a new job, for most workers, it is at a lower wage. Workers also often lose health benefits when they are displaced, along with the seniority and other benefits that come with long tenure in a job. Given all these risks for workers, an employer faced with the possibility of a unionized workforce may effectively use the threat of closing a plant to discourage workers from forming a union.

The existence of a safety net to help workers who are displaced because of plant closings can be crucial to ease the adjustment burden for workers and help them to be reintegrated into the labor market. Although several federal, state, and provincial adjustment programs exist, many workers, for various reasons, never avail themselves of these programs. (Appendix E provides a discussion of labor market adjustment programs available to workers in each country.)

Early Warning and Suddenness of Plant Closings

A key consideration for the adjustment of workers to plant closings is how much advance notice they were given to prepare for being displaced. The federal governments in Canada and the United States, as well as several provinces and several states, have recognized the importance of providing workers and communities with advance notice of a plant closing so that the adjustment process can occur more smoothly. Instead of requiring advance warning, Mexican law requires employers to obtain permission from the labor authorities to close plants (although the procedure is rarely used—see Part Three, Mexico findings).

Despite the fact that there is some evidence that such warning can be helpful in the adjustment process, most plant closings in the United States and Canada occur with no such notice, and the rapid adjustment costs are borne by workers, government institutions, and local communities. The following is a brief discussion of early-warning programs in the three countries.

United State

The Worker Adjustment and Retraining Notification Act (WARN) was enacted in 1988 to improve the adjustment prospects for displaced workers by providing workers and communities advance warning of impending dislocations. Under the WARN Act, certain firms are required to provide 60 days’ advance notice to workers prior to a mass layoff or plant closing that will last more than 6 months and affect at least 50 workers.

In addition to the WARN Act, which is a federal requirement, numerous states have enacted advance warning legislation. Nine states enacted plant closing laws prior to the WARN Act enactment, and several others have since enacted such laws. The state requirements vary, with some exceeding the WARN Act 60-day requirement and others offering other improvements to the federal legislation.

Two exceptions to the WARN Act allow reduced notice requirements that are particularly relevant to this study. Given that the "intent" or "cause" of a plant closing is a key concern of this study, i.e., whether a plant closing was motivated by economic or anti-union reasons, exceptions to the WARN Act are useful to analyze.

The first exception is the so called "faltering company" exception, which applies only to plant closings. Under the Act, companies are allowed to provide less than the required 60-day notice in situations in which the announcement of a closing would adversely affect the company’s ability to gain financing or new business that may keep the company afloat. Specifically, the exception applies if the company (1) is actively seeking capital or business at the time the 60-day notice would have been required, (2) possesses a realistic opportunity to obtain the financing or business sought, (3) has the ability to demonstrate that business sought would be sufficient to enable the employer to avoid or postpone the shutdown, and (4) believes in good faith that giving notice would preclude the employer from obtaining the needed capital or business.

A second important exception to the WARN Act’s 60-day requirement is the "unforeseeable business circumstances" exception, applied to a sudden, unexpected action or condition outside the employer’s control, such as the loss of a major contract, a strike at a major supplier of the employer, or a sudden dramatic economic downturn. Exceptions are also granted for temporary projects or facilities and strike or lockout situations.

Except for those employers who meet the requirements for the exceptions allowed under the Act, employers that do not provide the required 60-day notice are liable for monetary damages to employees who should have been notified under the Act. Such employees are eligible for damages including 1 day’s pay plus benefits for each day that notice was not provided, for up to 60 days. In addition, employers are liable to the local government for damages of up to $500 a day for each day without notice.

A recent Supreme Court ruling reaffirmed the right of unions to file suit on behalf of employees to recover damages under the Act. This right had been questioned by some employers, who argued that only individual workers had standing to file these suits.¹⁰⁵

A 1993 study by the U.S. General Accounting Office (GAO) and related academic research since then have highlighted some of the shortcomings of the WARN Act.¹⁰⁶ According to the GAO report, the WARN Act, in its current form, excludes 98 percent of American businesses and leaves 64 percent of U.S. workers unprotected against sudden plant closings and mass layoffs. The flaws result primarily from the Act’s narrow requirements, which cover only the following: (1) businesses with a total workforce of 100 or more employees; (2) plant closings that affect 50 or more workers; (3) mass layoffs of 50 or more workers, where those workers represent at least one-third of the workforce at that site; (4) mass layoffs where 500 or more workers are affected; and (5) full-time workers (i.e. part-time workers are not covered). The 1993 GAO report found that more than 10,000 WARN Act notice violations have occurred since its enactment, but only some 100 lawsuits for WARN violations have been filed.

Canada

Employment Standards legislation in Canada provides for two types of employee entitlement in the event of mass termination resulting from plant closing. First, most jurisdictions stipulate that terminated employees are entitled to an increased period of notice (or pay in lieu of), as compared to the notice required for individual terminations.¹⁰⁷ Second, employees terminated as a result of plant closing in some jurisdictions are entitled to severance pay. At the federal level, the Canada Labor Code provides for a group termination notice period of 16 weeks when 50 or more employees are terminated within a 4-week period, as well as severance pay for employees with at least 12 consecutive months of service. Not all provinces set the threshold number of employees at 50. In addition to employee entitlements, a number of jurisdictions compel the creation of joint committees, through which employers are to cooperate with employee representatives to search for alternative solutions to mass termination or to minimize the impact of terminations on employees.

When appropriate notice is not provided, Ontario law requires an employer to pay termination pay in the amount equal to the wages the employee would have earned during the period of notice, in addition to benefit contributions for this period. In Ontario, employers may be required to provide the following information: (1) the economic circumstances surrounding the intended terminations, (2) any consultations that have occurred or that are planned with local communities or employees and their agents, (3) proposed adjustment measures and the number of employees expected to benefit from each, and (4) a statistical profile of the affected employees. Similar, although less detailed, notice requirements are provided in British Columbia, Manitoba, Saskatchewan, and federal law. Table 16 summarizes Canadian notice requirements.

Table 16. Canadian Advance Notice Requirements

Table 16. Canadian Advance Notice Requirements (cont.