 

CONGRESSIONAL

RESEARCH

SERVICE Universi of Missouri-Col mbia
UBRARY OF WW lmllﬂlﬂl ||||||||||ﬂ Ill?
CONGRESS 0104039392 9

 

PLANT_CLOSINGS AND RELOCATIONS

ISSUE BRIEF NUMBER IB30068

AUTHOR:
Bolle, nary Jane

Economics Division

THE LIBRARY OF CONGRESS
CONGRESSIONAL RESEARCH SERVICE

HAJOR ISSUES SYSTEB

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CRS- 1 IB80068 UPDATE-07/22/80

w ISSUE DEFIQITIOQ

Plant closings in this country are making headlines in increasing numbers
among some of the long-established corporate employers that have formed the
backbone of American industry. Closings are occuring in both the durable
goods (including steel, auto, and electronics) and nondurable goods
(including tire, clothing, and textile) industries. Chrysler, U.S. Steel,
Ford, Goodyear, B.F. Goodrich, Uniroyal, and Zenith, to name a few, have been
terminating some plants.

The question Congress is facing in this regard is twofold: First, should
the Federal Government regulate plant closings; and Second, if so, what form
should this legislation take?

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Unlike a number of European countries, the United States places few
restraints on employers closing down plants (except as prohibited by a
National Labor Relations Board interpretation of section 8(a)(1) of the
National Labor Relations Act regarding moves solely to avoid unionization).

Commercial and industrial mobility -- that is, the ability to move to more
economically viable locations, or to adjust.production operations in response
r demand-supply considerations -- is, in itself, a rational and accepted
element of the free enterprise system. Therefore, the concern of Congress is
focused primarily on the social and economic consequences of such mobility,
the consequences usually borne by workers and the community, rather than on
restriction of justifiable business movements. To a lesser extent, however,
the concern of Congress is also focused on corporate "responsibility" to
avoid in the first place economic problems that may motivate the move. This
brief explores issues relating to proposed legislation resulting from these
concerns.

§a2§s§_9.f-<.?.1L9§2rs§

There is no single reason for plant closures. Any number of economic
factors may play a part in a management decision to either close or move all
or part of its operations.

In some cases, for instance steel, the industry may be in decline. A
considerable portion of steel production is used in the auto industry.
Plastics and lighter weight metals are replacing large amounts of steel in
cars, which continue to be downsized, further slashing demand for steel.

In other cases, plants close because they are no longer nationally or
internationally competitive. Sometimes goods of equal or better quality can
be produced at lower prices in other countires or in other States which have
lower wages or a broader and more appropriate labor market. This is

eguently the case in labor-intenseive industries such a clothing, textiles,
or electronics. Similarly, goods can frequently be produced at lower cost in
new plants with more advanced technolO9Y: as in the European and Japanese
steel industry, where operations were built or rebuilt, for the most part,
after World War II. In still other cases, as in the auto and tire

CBS’ 2 IB80068 UPDATE-O7/22/80

industries, plants close because the American manufacturers have failed to
produce a product meeting the consumption choice of the buyer.

Corporations may also close certain marginal plants which fail to show as
great a profit margin as other operations of the corporate owner. Such
plants, however, may sitll be profitable in the absolute sense.

Other plants may be losing money with little or no hope of profitability
due to outmoded, inefficient facilities which cannot be modernized at all or

i modernized at reasonable cost.

other closures may be part of relocations. In some cases corporate giants
are relocating operations by opening facilities in other parts of the United
States or abroad. They may no longer require facilities which produced
principally for long-distance transport or export. Or, they may be
influenced in their decision-making process by weather considerations, local
labor, commuting or tax conditions.

In addition, certain provisions of the 0.5. Tax Code arguably encourage
the relocation of companies —— the abandonment of outdated facilities and the
construction of new plants -- by permitting various credits and allowances.
Also, recently skyrocketing energy and transportation costs provide
additional reasons for moving production of some plants from one location to
another, including access to raw materials or fuel.

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Although a number of plants change locations, greater numbers close
out-right. There are no national figures on the extent of plant closings and
relocations in this country. Indeed, they are difficult to gather because
there is no central data source, Federal or private, from which to obtain
them.

In the absence of such information, certain academicians have attempted to
estimate plant closings and relocations. The most frequently quoted studies
base their figures on comparisons of annual company listings by Dun 8
Bradstreed (a credit rating institution). The results have been criticized
because this method of analysis fails to disclose companies that close under
one name and open under an entirely separate name; and may fail to reveal

' long-term business contractions and related expansions in separate ,locations
9 by the same employer, another aspect of the plant closing problem.

In April 1980, Professors Barry Bluestone of Boston College and Bennett

' Harrison of the Massachusetts Institute of Technology estimated, using the

Dun 8 Bradstreet listings, that between 1969 and 1976 at least 15 million
jobs (or an average of 2.5 million jobs per year) appear to have been
terminated in the United States as a direct result of business closings in
all industries. The report further estimates that “frostbelt“ firms lost
about 111 jobs through plant closings for every 100 new jobs created through
openings, while "sunbelt" and "far Bestern“ companies eliminated an average
of only 80 jobs through business closings for every 100 that they create(

g {through openings.

I.-a22I.:_91;9aI.1.i.za£i9I_1 Estimates

CRS- 3 IB8006B UPDATE-O7/22/80

some labor unions have tried to keep track of closings and resulting job
\sses. The United Auto workers Union estimates that at least 9,200 auto
industry jobs were lost in 1979 from plant closings (not including more

 :recent 1980 operating cutbacks). The United Steelworkers Union counted

32,000 workers between 1972 and 1980 in the steel industry put out of work as
a result of plant closings. The United Rubber Workers estimate that roughly

»55,000 workers have lost their jobs in the tire production industry as a

result of plant closings between 1972 and 1980. The International Union of
Electircal Radio and Machine Workers is holding its estimates on workers

unemployed as a result of plant closings for unveiling at future hearings.

However, newspaper accounts have revealed that in the electronics industry at
least 7,000 workers have lost employment in the Zenith Corporation alone, as
a result of plant closings between 1977 and 1980.

Be9i22al-§hi£:§.ia_12Q2§:rial Qongentretiem

Regardless of the precise number of plant closings, some observers have
looked to the shift in concentration of certain industries from one part of
the United States to other parts over the past 20  years as circumstantial
evidence of the extent of the plant closing problem. The shift may, however,
also evidence contractions of certain operations. "

Bureau of Labor Statistics figures indicate that employment in nearly all
of the seven major industry groups has grown substantially in the last ten
years, with one major exception: employment in manufacturing has dropped
form 35% of all employment in 1968 to 29% of all employment in 1978,

continuing a long-term trend. Within the manufacturing sector, statistics

:dicate that the Northeast has suffered the brunt of this decline -- a net
loss of 800,000 jobs, or a 16% decline in its share of the national
employment in manufacturing sectors. At the same time the North central
region's share of manufacturing employment has stayed about the same, and the
South and west have experienced a 15% and a 9% gain from their previous
shares, respectively. (These names refer to census regions.)

while a substantial portion of the manufacturing employment loss in the
Northeast has been in the non-durable and labor-intensive 'durable goods
industries, a substantial part of the employment gain in the South and West
has been in the non-durable and lower-paying durable goods industries. some
observers have argued that such industries have moved to states with
"right-to-work" laws, which are permitted under section 1u(b) of the National

Labor Relations Act, to take advantage of lower wage rates. Such
right-to-work laws prohibit union security clauses requiring membership in a
labor organization as a condition of continued employment, in

labor-management agreements. On the average a manufacturing worker in a
right-to-work State makes about $30 less per week than does a manufacturing
worker in a non-right-to-work State. However, it is not clear to what extent
the lower average wage rate results from the right-to-work status.

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In 1970 Representative iilliam Ford of Michigan, in conjunction with some
representatives of the United Auto Workers, developed the National Employment
;iorities Act (H.R. 13541) which in 1975 became H.R. 76, the basis for major
plant closing proposals today. H.R. 76 would have required a 2 year
prenotification to workers in plants slated for closing and would have
established a program of federally funded financial assistance to provide
income maintenance payments to terminated workers, job placement and

CRS- 4 IB80068 UPDATE-O7/22/80

e retraining benefits, assistance to other businesses in communities affected

by dislocation, and grants to communities affected by plant closings.

In the summer of 1979, Representative Ford traveled to Western Europe to
observe the workings of plant closing and relocation laws of the United
Kingdom, West Germany, and Sweden, with representatives from several labor

“groups including the United Auto Workers, the United Steelworkers, and the

International Association of Machinists and Aerospace Workers. Upon his
return, Representative Ford, in cooperation with Senator Riegle, introduced
H.R. 5040/S. 1608, "The National Employment Priorities Act of 1979" on July
31, 1979. The same day, Senator Harrison Williams introduced S. 1609, "The
Employment Protection and Community Stabilization Act of 1979." Both bills,
unlike the earlier Ford version, based their benefits program on employer
financing (instead of Federal financing): limiting benefits to 52 weeks
except in circumstances involving older‘ retiring workers. (The bills
provide, however, that continuing benefits for retiring workers shall be
funded by the Federal Government.) whenever a business concern fails to make
the required payments, the Secretary of Labor shall make the payments and the
amount shall be deemed a debt owed to the United States and shall bear simple
interest at 9% per year.

These two bills provide, in all, for the following:

1. Advance notice of closing or relocation to workers, unions, and the
Secretary of Labor;

2. Wage replacement benefits or severance pay, which are available in
cases of long-term layoffs as well as plant closures;

3. Provisions for receiving early retirement benefits;

4. Continuation of employee health and welfare benefit plans (included
only in S. 1609);

5. Right of employees to transfer to other operations of the employer;
6. Reimbursement for job search and moving expenses;
7. Job training or retraining allowances;

8. Federal funding to business concerns in the forms of loans, loan
guarantees, grants and contracts, and interest subsidies to assist them in

;‘ remaining operative (Federal funding under 5. 1609 is applicable only to

worker takeover programs.);
9- Assistance in obtaining Federal procurement contracts;

10. Federal assistance to employers and cooperative associations to keep
the plant operating, or expand employment opportunities;

11. Federal assistance to local communities (only included in H.R. 5040/S.
1608);

12. Payment by business concerns to the community for loss of ta:

(revenue;

13. Payment to the U.S. for loss of Federal revenue when the company moves
abroad (only in H.R. 5040/S. 1608);

CBS- 5 IB8GO68 UPDATE—07/22/80

14. Penalties equal to amounts of certain tax and wage savings for failure
to comply with the Act.

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There are a number of arguments offered by supporters for passage of plant
closing legislation. They are summarized as follows:

The proposed legislation:

1. Affirms the principle that the responsible party should bear the cost
of his action;

2. Relieves the employee .of some of the financial burden of his
unemployment;

3. Extends responsibilities now assumed by the Federal Government under
such laws as the Trade Act of 197a (P.L. 93-168) and the Redwoods Act of 1978
(P.L. 95-250) as well as other laws including several railway reorganization
Acts (to pay benefits to unemployed workers) to private industry;

#. Permits 0.3. policies to "catch up" with those of European nations,

Fwhich have had plant closing and relocation laws on the books for a number of

:ars;
5- Permits flexibility in selecting the age of retirement, by providing
benefits in certain cases to older workers who are unable to find jobs
because of their age;

6. Constitutes a first step toward a national capability to coordinate
industrial production with national and international needs and demands;

7. Eliminates a dual class status among workers: those workers covered
by collective bargaining agreements calling for prenotification and special
unemployment benefits, and those not covered.

A§A.I.!§£-Le9.:;§.1..2 §.'_9..I;

Opponents of the legislation offer the following arguments to support
their position. They believe the proposed legislation:

1. Further diverts funds otherwise available to increase productivity (in

i’ a manner similar to funds diverted by OSHA and EPA requirements) to

non—productivity-increasing activities;

2. Discourages, rather than encourages industrial efficiency, automation,
and the cutting back of employees to increase productivity;

3. Encourages and subsidizes unemployment by offering, in essence, a
y;ar's "vacation with pay“;

H. Further endangers the financial position of affected businesses in. thei

credit markets, by requiring as much as 2 years‘ prenotification before a

plant closes;

CRS- 6 IBGUOSB 9PDATE~OI/22/80h

S. Eliminates investment-producing tax advantages in certain instances;

6. Hoves us one step closer toward socialism» ("If we can, afteri

enactment oi this bill, require prenotification of and payments to workers,
the next step could be to deny firms the right to lay off workers without
prior government approval");

7. Proposes to solve a non-existent prcbleu. Carol Jusenius and Larry
Iedebur, two Onio professors who conducted a study for the Commerce
Department's Economic Development Administration in 1976, found that only
1.5% of job loss in the North was caused by departure of companies to the
South. In addition, follow-up studies show that, after closings, hard~hit
cities suffer relatively low unemployment rates as a result of a natural
diversification of industries, combined with individual relccations to pursue
other jobs, as well as the success or various job placement programs.

§;i§tia9_2r9eraa§-a§ Blternatiﬂes to Pia;t.£l9§ia2.;a2i§;aiien

Assistance is provided to workers rand communities atfected by plant
closings under a number of existing Federal and State programs, organized
into the following categories:

1- Resale; Paxmenta

Heekly benefits under the Trade Act of 197a paid by the Federal Governmentg

to individuals whose job loss is the result of foreign imports;
ﬂnemploynent insurance benefits under the Social Security Act;
Special benefits included in certain collective bargaining agreements;

Welfare benefits (Aid to Families with Dependent Children) under the
Social Security Act for individuals meeting income and asset requirements.

2- 1rai2in9_a2d-§92.Elaee!en:-§a§;§ta ce=

Job Training under Title III of the Comprehensive Employment and Trainigg
Act Amendments of 1978;

Assistance by local offices of the Employment Service under the Department
of Labor:

Training assistance as provided under various programs under the Commerce
Department's Economic Development Adainistration;

training and job placement assistance as provided for in various
collective bargining agreements;

Assistance as provided by a joint Department of Labor-Commerce Department
experimental program to increase coordination of various training progrcws
and employment opportunities in four cities nard~hit by steel plant closings.

3- aéditi nal a§§is2a»2e

CBS- 7 IB80068 UPDATE-O2/22/80
Housing and Urban Development Section VIII Housing Assistance Payments
oqram to pay the difference between what a lower income family can afford
baa HUD-appraised rent for an adequate housing unit.
in Assistance to B2sin.e.>§§2§.9.r_1<.1._§<.>m2L1.ni:c.i.2§.A_f:e2£e_d-h1-2lan: <.=l9§in.g§
Small Business Administration loans to businesses;
Housing and Urban Development programs of assistance to communities;
Commerce Department's Economic Development Administration programs of
assistance to communities and businesses under the Public Works and Economic
Development Act of 1965, P.L. 89-136.
5- 2r99£am§_§2.§-2l9z-E9££e£§

Public Service Employment programs as authorized by Title VI of the
Comprehensive Employment and Training Act.

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Provisions of law regulating Employee Stock Ownership Plans (ESOPS) under

the Employment Retirement Income and Security Act of 1974 (ERISA) to enable
workers to "buy" their corporations slated for shutdown with borrowed funds.

LEEISLAEIQE

In the 96th Congress more than 40 separate bills have been introduced to
address the problems caused by or related to plant closings. Included are
proposals to amend the Trade Act of 1974 and to extend authorization for the

19 Public Works and Economic Development Act of 1965, under which a number of

assistance programs serving those affected by plant closings are carried out.
Also included are the following:

£222rehen§i!s_2;an£.§;2§in9 Legislation
H.R. SOHO (William Ford)
See discussion above.
S. 1608 (Biegle)
See discussion above.
5. 1609 (Williams)
See discussion above. y
S. ZHOO (netzenbaum) and H.B. 3187 (Gaydos) (not similar bills) provide
for comprehensive programs of assistance to individuals and communities, and
S. 2400 additionally places a proportion of the financial responsibility for
compensation on the shoulders of businesses terminating operations.

ion- Qenteiaing Qggngnenss- 2:. §2a2;§h22§iz2_ Plait Qlesiaa

Legisiat
Lsgisiatiea

H.R. 2203 (Kostmayer) sets up a program to identify operations in danger

‘D " closing, resulting in substantial unemployment or economic dislocation.

H.R. 5382 (Erdahl) provides for taxation, at reduced rates, of severance
pay resulting from plant closings.

S. 2150 (Hetzenbaum) amends the Public works and Economic Development Act

CRS- 8 IB80068 UPDATE‘0T/22/83

of 1965 to establish a special program of job creation or preservation
assistance to steel, coal, and auto impacted industries.

3- Lsgielerion larqeted to Snecial Ind2§£rie§.22_§22l2z22§

P.L. 96-185, the Chrysler Corporation Loan Guarantee Act of 1979, is an

” example of special legislation for loan guarantees authorized in extreme

cases to provide assistance to a specific company in a heavily impacted
industry.

4- Ea2l21ee-9!2e;§hi2.§ill§

A number of bills have been introduced to facilitate employee ownership of
plants threatened with closing. (These include H.R. 1589 (Frenzel), H.R.
4902/S. 1240 (Frenzel/Long), H.R. 2483 (Baldus), H.R. 7259 (Nowack), S. 1058
(Gravel), and S. 388 (Stewart).

5. 388 was reported to the Senate by the Senate Small Business Committee
(Report 96-93). It would amend the Small Business Act to make employee owned
firms eligible for financial assistance under the Small Business
Administration's Business Loan Program.

H.R. 7259 was reported out of the House Small Business Committee House
Report 96-1000. This bill would amend the Small Business Act and make
employee owned firms eligible for financial assistance under the Small
Business Administration's Business Loan Program.

5- 2e£en§e-;nd2§:r1

A number of bills including H.R. 1545/S. 1031 (Weiss/McGovern) H.R. 1712
(Mitchell) H.R. 1940 (Forsythe), H.R. 3196 (HcKinney), and H.R. 3300 (Dodd)
would aim to facilitate the economic adjustment of communities, industries,
and workers affected by such reduction in defense contracts, military
facilities, and arms exports as results from changes in national arms control
policies or national security requirements.

6- Qernorare Acsegetahilitz

Certain bills would regulate corporate conduct and increase corporate
accountability in the first instance, rather than providing for compensation
of unemployed workers after a plant closes. H.B. 7010 (Bosenthal) would do
both. In addition to requiring prenotification to workers and compensation
to workers and communities affectbd by plant closings, it would greatly
enlarge the Federal role in regulating corporations with more than $250
million in assets or sales, or more than 5,000 employees.

5. 2567 (Hetzenbaum) (would establisha minimum Federal standards for
corporate conduct and shareholders’ rights.

5. 600 (Kennedy) prohibits mergers, acquisitions, consolidations, etc.
among certain large-size businesses. It is frequently such consolidations
that ultimately result in closings of plants with profit rates lower than
those of other plants connected with the same corporation.

H.R. 1543 (Vanik, et al.)
Introduced Jan. 25, 1979; referred to House Committee on ways and Means;
Feb. 15, 1979 referred to Subcommittee on Trade. Feb. 15, 1979 Subcommittee

p hearings held. Feb. 27, 1979 Subcommittee consideration and Harkup session

CBS“ 9 IB80058 UPDBTE~07/22/S0

hela. Feb. 27, 1979 fcrnardei by Subcommittee to full committee (amendeﬁﬁ.
ssed House, anendeﬁ, Hay 30, 1979. Reporteﬂ out of Senate Finance
Lonmittee Oct. 30, 1979 $S.Ee§t. 96~385).

0.3. Congress. House. Education and labor Committee.
Genera; Subcommittee on Labor. Hearings, 93rﬁ Congress,
2nd session, on H.R. 135uI, the National Employment Priorities
Act, October 19, 1974. ﬁashinqton, U.S. Govt. Print. Off.,
197k, 150 pp.

~~~~+ Subcommittee on Labor Standards. Hearings, 94th Zongress,
1st session, on H.k. 76, The National Employment Priorities
Act, May 9, 1975“ Qashington, U.S. Govt. Print. Ot£., 1975,
 tZ? pp.

--~—— Hearinos, 95th Conqress, Enﬁ session, on H.R. 76, Rational
J . _ -
Employment Priorities Act, August 35, 1973. Washington,
3.3. Govt. Print. Gff., 1978, 389 pp.

-~~-~ Joint Economic Committee. Subcommittee on Fiscal and
Intergovernmental Policy. Generai oversight hearings, 95th
Congress, and session on Keeping Business in the City, March
5, 7, 1978. Rashingtcn, U.S. Govt. Print. Off., 1978, 189 pp.

--—~ Senate. Labor and Human Resources Committee. Oversight
hearings, 95th Congress, 1st session on Plant Closings and
Belocations, ﬁanaury 22, 1979. Washington, U.S. Govt. Print
Off., 1979, 93 pp.

-“r- Hearings, 96th Congress, 1st session on S. 1609, Employee
Protection ann Community Stabilization Act of 1979,
Gctober 23, 1979. ﬁashington, U.S. govt. Print. Otf.,
1980, 352 pp.

~-~~- House- Education and Labor Committee. Joint ﬂearings before
the Subcommittee on Employnenn Opportunities and the Subcommittee
on Labor management Relations, on H.R. 5040, National
Employment Priorities Act, January 13, 1980. Eashingto.,
U.S. Govt. Print. 0ff., $980, 319 pp.

---- ~ Senate. Select Committee on Small Business. Overisght
hearings, 96th Congress, Znﬂ session on Effects 01 Steel
industry Closing on Small Businesses and Local Communities,
February 5, @980. Washington, 0.3. Govt. Print. Gff., 1980,
92 gp.

O1/C7/80 »~ Dresiﬁent signed P.L. 96-85, the Chrysler Corporation
Loan Guarantee Act of 1979 {H.R. 5806 —— noorhead).

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