Economic Losses Of Laid-off Auto Workers (michigan).

Abstract

This study is comprised of an examination of three distinct, yet related, empirical issues concerning the private economic costs and readjustment behavior of laid-off auto workers in the 1980-1982 recession. The source of data for these investigations is the Michigan Survey Study of Displaced Auto Workers--a detailed, cross-sectional, 1984 survey of 429 auto workers indefinitely laid-off in 1979-1982. The first issue examined in this study is the extent of income losses suffered by laid-off auto workers and their households in the 1980-1982 recession. Displacement costs are estimated through a careful consideration of the loss of potential auto earnings, the receipt of compensation, the effect of tax rates, and the loss of non-wage economic benefits, for periods ranging from one to three years after layoff. After a review of prior studies of the economic cost of displacement, it is concluded that auto workers experienced a greater loss of income in the 1980-1982 recession than in any previous downturn in the 1960-1980 period. A second discussion focuses on the potential loss of residential capital as a determinant of geographic mobility, and through this choice behavior, a worker's loss of both equity and income as a result of layoff. A review of the literature and evidence concerning the geographic mobility of the unemployed is followed by the presentation of an original behavioral model of the migration-choice problem for displaced workers. A structural probit estimation model is applied to data on relocation behavior and outcomes from the Michigan Survey Study. An explanatory variable measuring the level of potential residential capital loss of displaced workers is developed and used in the structural analysis. The estimation of earnings gains and equity costs attributable to relocation generally support hypotheses of the importance of residential capital as both a component and determinant of the total cost of displacement. A final analysis issue concerns the influence of seniority or company tenure upon losses of displaced auto workers. The current seniority-layoff system, prevalent in auto manufacturing, is modeled as a cost technology designed to minimize the total personal cost of any level of layoffs. Using this model as a framework for estimation, results are presented that indicate a powerful influence from this system upon the average level of observed displacement costs in the 1980-1982 recession. Policy implications include an expected low return for public efforts to promote the geographic mobility of displaced workers; and a greater likelihood of higher levels of average displacement costs for future layoffs in the American auto industry because of rising seniority levels.