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Anticipating plant closures: the role of advance notification

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8 Policy responses

The transmission process can finally be traced to possible secondary policy responses. The mandate of the WARN Act (1988) is unlikely to satisfy all demands for improved corporate disclosures and stringent advance notification requirements at the local level where the impacts of plant closures are most pronounced.

Many other questions related to mandated corporate disclosures and other stakeholder related legislation remain open. There is also the question of whether the threat of stakeholder oriented legislation will promote voluntary disclosures? The answers are likely to be influenced, for example, by (a) the extent of businessmen's continuing preference for making concessions in collective bargaining agreements rather than by losing privileges through legislative fiat; and (b) by the extent to which workers, unions and other stakeholders develop alternative internal and external reconnaissance capabilities which would make their early warning systems less dependent on corporate disclosures (Bluestone and Harrison, 1982). The relatively mild nature of the 1988 federal bill has not ended efforts at the state level to e act tougher measures. In Washington State, for example, the House of Representatives recently passed a bill requiring 100 days notice for firms as small as 25 employees (State of Washington, 1989). Thus the fear of many business lobbyists may indeed be justified, namely that the legislation would be precedent setting and open the door for other restrictions of corporate reorganization involving employment changes (OTA, 1986, p.3).

For good reasons, arguments as to which governmental level should be responsible for disclosure legislation have been inconsistent. Business lobbyists successfully prevented national legislation for a long time, in part by suggesting that this kind of legislation should be left to the local or state level. The same business interests would then, at the state level, appeal to the inter-territorial competitive spirit arguing that firms would be "forced" to shift their plants to states which do not have notification requirements (Table 3).

What company would want to move into an area that had substantial economic penalties for moving out? What entrepreneur would want to start a business in a community or state that had penalties for changing locations? Companies interested in profits will always try to settle in those areas that leave them free to make the basic decisions on when to shift among products, when to close, and when to move. States and Communities that do not impose restrictions will obviously have a competitive advantage over those that do..." (McKenzie, 1984, pp.26f).

Interestingly, the American Chamber of Commerce, well experienced in such interregional gamesmanship, exported this argumentation to Europe in their (so far successful) opposition to the Community level "Vredeling proposal" for the regulation of disclosures by multinational firms (Trowbridge, 1982; Blanpain, 1983).

Approx. location of Table 3

Among other policy issues which deserve further scrutiny are questions of appropriate length of mandated notice. For example, is a fixed and uniform time period fair and equitable for employers? Should an employer who has informed his work force regularly about relevant developments be held to the same time frame as another employer who has kept employees in the dark? Ideally, appropriate notice periods would be determined for each case based on employer disclosure costs as well as stakeholder information needs and benefits, i.e. on factors such as anticipated instabilities, relative size of the laid-off labor force, flexibility and absorptive capacity of the local labor market, the extent to which wages reflect risk of unemployment, occupational and geographic mobility of the labor force, a variety of social costs related to displacement and infrastructure utilization, availability of adjustment Assistance as well as access to other forms of information and early warning systems.

Improving local early warning systems

The foregoing conceptualization can be understood as a step toward an articulated early warning system for local corporate economies. Such a system has to have two fundamental characteristics, namely (a) that it would involve not only notification of the directly laid-off labor force, but also other local constituents or stakeholders; and (b) that it would not have to rely only on either mandated or voluntary announcements of specific plant closures, but would include mechanisms to recognize, and observe over time, changes in probabilities of employment adjustments and plant survival. British geographers have suggested (and Implemented for research purposes) such diagnostic systems by monitoring panels of firms representative of the structure of a regional economy (North et al., 1983). These firms would be followed by repeated surveys and information from secondary sources. The authors observe that "the explanation of plant level employment change cannot start with an analysis at the level of plant Itself, nor at the level of the firm of which a plant is a part, nor in factors local to a particular borough. Rather, the firm and plant are seen as contained within larger economic structures, some analysis of which is vital to understanding changes occurring at the levels of the firm and plant" (North, et al., 1983, p.113). Otherwise, early warning systems of this kind seem to exist only in fragmented and uncoordinated form.

Thus, stakeholders' early warning systems can be described as

(a) consisting of streams or trickles of disconnected signals; and (b) being isolated from the warning systems of other stakeholders. Signals Include: (a) regular, sporadic or event- (closure-) specific voluntary corporate disclosures; (b) mandated disclosures, such as those covered by the WARN Act (1988); (c) information about potential plant closures gained through extra-corporate channels (banks, stock or industry analysts, government oversight agencies or other stakeholders or friends); (d) information useful for stakeholders, but presently not disclosed, either due to corporate secrecy, due to the fact that it is presently not part of the corporate Information system or that there has not been any overt demand for such information. Liebhafsky's vintage statement has, mutatis mutandis, still relevance for today's causes of plant closure, even If corporate environments have become more complex.

An employer who has failed to develop the foresight necessary to anticipation of technological change within his industry, of course, would have little reason to react favorably to an advance notice system. To the extent that representatives of the local employment service office might stimulate such an employer's anticipation..., they should be able to cause him to become aware of the manpower problems likely to be inherent in the technological change. (Liebhafsky, 1963, p.319, footnote 13)


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