Plant Closings:

Evaluation of Cost Estimate of Proposed Advance Notice Requirement

HRD-88-71: Published: Mar 3, 1988. Publicly Released: Apr 4, 1988.

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Pursuant to a congressional request, GAO examined a private firm's report on the costs of proposed legislation requiring businesses to provide employees with advance notice of closures or layoffs.

GAO found that the study concluded that advance notice laws could have resulted in: (1) 460,000 fewer jobs in the United States between 1982 and 1986; and (2) employers incurring additional yearly costs of $1.8 billion for administrative costs, lost profits, and penalties. GAO also found that the study's methodology did not support its conclusions, since it: (1) estimated the impact on jobs through a comparison of the employment growth rates of other countries without considering the vast differences among the selected countries' fiscal, monetary, and tax policies and population growth rates; (2) assumed that advance notice laws affected 10 percent of the difference in employment growth rates, although there was no demonstrated causality between them; (3) inexplicably included or excluded certain countries from the comparison; and (4) analyzed a brief expansion phase rather than a full business cycle. In addition, GAO found that the methodology: (1) assumed that 61 percent of applicable establishments performed limited corporate planning, when over 80 percent were likely to have this capacity; (2) may have overstated the extent to which employees were likely to quit before their facility closed; (3) included in its calculations firms excluded from the proposed legislation; and (4) included significant double counting in its estimates.

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