Worker recall could aid economic recovery
How our country recovers from the deep economic recession depends on policy choices made by elected officials now.
The Connecticut General Assembly is considering “worker recall” legislation, which requires employers to rehire former employees first when jobs become available again. As a professor of economics at The New School for Social Research, and director of the Schwartz Center for Economic Policy Analysis, I conclude from the evidence that the proposed recall legislation would be a critical step on the road to economic recovery and increased productivity.
Connecticut lost approximately 130,000 jobs in 2020, out of a 1.8 million workforce. We know from prior recessions that economies able to maintain the employer-worker relationship can bounce back from downturns far more quickly. Furthermore, when layoffs are permanent rather than temporary, workers experience longer periods of unemployment and lower lifetime earnings, thereby weakening the overall economy and household finances already made fragile by unemployment.
“Worker recall” practices — encouraged by regulation — are efficient and a triple win for the economy, employers and workers. The proposed legislation requires employers to offer jobs to qualified former employees, in order of tenure, when jobs become available again. Minimizing the number of permanent layoffs creates productivity gains. Employers are able to avoid the costly and time-consuming process of hiring and training new workers. Passing recall legislation could also reduce worker anxiety and bolster consumer spending, which will be critical to reviving the economy after it suffered its biggest blow since the Great Depression. Studies suggest workers who believe they are likely to be called back to a steady job are more likely to continue spending money.
Permanent layoffs heighten losses during an economic recession; workers experience severe and lasting consequences for earnings, alongside increases in job instability, recurring periods of unemployment, and repeated switches of industry or occupation. This effect is even more destructive for older workers, who typically see a 35 percent decline in wages if they lose their job and get another one. Workers who are recalled from layoffs do far better than those who are permanently laid off for the rest of their careers. I worry about older workers who don’t get recalled — their retirement prospects will likely take a plunge.
Opponents may argue employers would be hurt by a worker recall requirement. They won’t because the proposal requires employers to rehire workers only if the worker is qualified and does not have performance issues. Some employers may be tempted to choose among a large pool of unemployed labor for the imagined perfect worker. However, hiring new workers instead of recalling former workers is often not in the employer’s long-term interest, because there are significant search and hiring costs — it costs about one-fifth of an employee’s salary to train a replacement for that employee. Furthermore, an average recalled employee stays twice as long at a firm compared to a new hire.
Worker recall legislation builds on the economic logic of the federal government’s Paycheck Protection Program, which contained incentives for employers to recall their workers in order to maintain employer-employee ties but was inadequate to meet the full extent of the need among employers and workers.
We need effective government intervention and bold leadership to guide us to economic recovery. By passing worker recall legislation, the Connecticut General Assembly can take an important step to connecting workers and employers and jump-start productivity.