Don Parsons, GWU

Severance Pay in the United States

Reemployment wage losses from job displacement are a major threat to long tenured workers. Severance pay, essentially scheduled wage insurance, provides some  measure of income protection. It is mandated worldwide, but provided voluntarily by  employers in the U.S. Voluntary severance pay emerged in the early years of the Great Depression with a second major growth period in the late 1950s and early 1960s, but coverage  at the turn of the Century remained seriously incomplete, and indeed declined during the  prosperous 1990s. How severance pay practices have evolved in the most recent decades  and especially how severance responded to the Great Recession are important policy  questions, but empirically challenging ones. The BLS stopped reporting on severance  coverage in 2000, forcing reliance on non-governmental sources. Severance surveys  conducted by two for-profit consulting firms and a non-profit professional association are  analyzed here. These sources indicate that benefits became modestly more generous over  the last two decades, but aggregate severance coverage remained stable, though becoming  somewhat more informal. The Great Recession induced a great deal of attention to severance  policies, but little net change in provision.  
 

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