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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