Volume 4, Number 2 (Spring) 1969
Stoikov, Vladimir. 1969. "The Allocation of the Cost of Displaced Labor and Severance Pay." Journal of Human Resources 4(2):192-204.
This paper analyzes the allocation of the costs of labor displacement from the viewpoints of economic efficiency and social justice. Commencing with a model assuming perfect knowledge of expected employment change--that of seasonal variations in employment--it examines the effect of this knowledge on an industry's expected labor supply price. Then, using a more realistic model of unpredictable employment changes, it considers the compensation for unexpected layoffs that is necessary for efficient resource allocation. Both models are modified by the restrictions of pure seniority systems to explore further the effects of these and other forms of seniority preference on layoff probability, unemployment compensation, and mobility preference. The major conclusion of the analysis is that, under specified conditions, workers permanently laid off should be compensated by their employers for the equity they have accumulated. The paper concludes with some observations on implications of the analysis for severance pay.
The author, a member of the faculty of the Institute of Labor and Industrial Relations, University of Illinois, is Visiting Professor at Cornell University for 1968-69. An earlier version of this paper was read by Judith Katz, Hugh Folk, Robert Raimon, and Jack Skeels, to whom the author is grateful for suggestions for improvements, both in content and style. The paper was presented at the Midwestern Economic Association meetings April 19, 1968, in Minneapolis, Minnesota. Subsequent suggestions from this Journal's referees are also appreciated.
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