How efficient are mandatory notice policies?

In OECD countries, mandatory notice (MN) policies require companies to notify employees of impending layoffs well in advance. This practice aims to mitigate the negative impacts of job loss.

Together with Jonas Cederlöf, Institute for Evaluation of Labour Market and Education Policy, and Peter Fredriksson, Uppsala University, David Seim and Arash Nekoei take a closer look at these policies.

MN policies offer workers a key advantage

Using Swedish data, the research suggest that MN policies offer workers a key advantage: the opportunity to find a better job while still being employed. This proactive job search can lead to future gains in productivity, as workers are less likely to face unemployment and more likely to secure higher-paying jobs. In essence, advance notice allows for smoother labour market transitions, reducing time spent between jobs and potentially increasing future output.

However, when workers are notified of layoffs, their immediate productivity often drops. The incentive to work hard diminishes, and the focus shifts to finding new employment. If the productivity losses outweigh the future gains, it might be more efficient for companies to offer severance packages rather than extending notice periods.

In conclusion, the research shows that workers receiving longer advance notice not only benefited from higher wages and shorter periods of unemployment but also experienced improved job matches.

Read the article in the Quarterly Journal of Economics

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David Seim

David Seim is a professor of economics at Stockholm University.

More about him here

What is the OECD?

The OECD (Organisation for Economic Co-operation and Development) consists of 38 member countries, primarily high-income economies with a high Human Development Index (HDI). These countries work together on issues like trade, education, and economic policies.