A Puzzling Aspect of the Effect of Advance Notice on Unemployment

Abstract

Displaced workers with generous periods of advance notice are more likely than their non-notified counterparts to avoid post-displacement unemployment altogether, but once unemployed, they tend to escape from unemployment much more slowly. The authors, using data from the five-year retrospective 1988 and 1990 Displaced Worker Surveys, examine three potential explanations for this puzzle: delaying behavior induced by the receipt of unemployment insurance, nonrandom distribution of notice to workers, and previous studies' failure to appropriately incorporate the pre-displacement search time of notified workers. This analysis supports the third explanation. After allowing for less intense search prior to displacement than following displacement, the authors find that the pattern of escape rates for otherwise observationally equivalent workers does not differ by notification status.