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WORKING PAPER
ALFRED P. SLOAN SCHOOL OF MANAGEMENT



DISINVESTMENT IN MASSACHUSETTS:
A CASE STUDY OF
PERSONAL AND ECONOMIC IMPACTS

by

*

Thomas A. Barocci



MASSACHUSETTS

INSTITUTE OF TECHNOLOGY

50 MEMORIAL DRIVE

CAMBRIDGE, MASSACHUSETTS 02139



DISINVESTMENT IN MASSACHUSETTS;
A CASE STUDY OF
PERSONAL AND ECONOMIC IMPACTS

by

*
Thomas A. Barocci



W.P. 1080-79 September 1979

Prepared at the Sloan School of Management
at M.I.T. as Part of the
Harvard-M.I.T. Joint Center for Urban Studies Project:

"Private Investment, Public Policy and the

Decline of Older Regions :

An Analysis of the New England Economy"

This report was prepared for the Office of Economic Research, Economic Develop-
ment Administration, U.S. Department of Commerce under contract //OER-620-G78-
14 (99-7-13440). The project was also sponsored by the Office of Research,
Employment and Training Administration, U.S. Department of Labor, and the
Center for Study of Metropolitan Problems of the National Institute of Mental
Health, U.S. Department of Health, Education and Welfare. Contractors con-
ducting research under government sponsorship are encouraged to express their
own judgments freely. Consequently, this report does not necessarily represent
the official opinions of any of the agencies mentioned. The author is solely
responsible for the content of this report.

*Special thanks are due to Lewis Brashares, Joseph Chow, Kathy Overskei, and
Dale Conway for their assistance in the planning and preparation of this
study. The author is an Associate Professor at the Sloan School of Management,
M.I.T.



Though corporate decisions to shut down or relocate plants are
routinely made according to the demands of profitability, the costs
cannot be assessed in monetary terms alone. Long-range examination of
plant closures reveals adverse effects on workers, plant owners, communities,
other local businesses, and the general tax base. This study is focused
on the employment and personal histories of a group of workers displaced
from a plant in an economically declining area of New England. Our aim
was to discover the experiences of those directly affected by a disinvest-
ment decision in order to recommend appropriate governmental responses to
the wider implications of shutdowns.

Background

The operation studied was a branch of a chemical company (referred
to as "Acme") located in the Fall River, Massachusetts, labor market
area. This area is declining in manufacturing employment, primarily as
a result of the closing or relocation of apparel, textile, and some durable
goods manufacturing. Over the 1970-74 period the area lost over 11 per cent
of its total manufacturing job base. At the same time, about 1 per cent
of the total job pool in the area was lost. Though there was some expan-
sion of jobs in education, health, and other services — accounting for
most of the area's specific growth — these are all industries into which
it is difficult to transfer from a manufacturing job.



See Fall River CETA Consortium, Annual Plan, Title I and Title II,
Fiscal Year 1978, 1977 (mimeograph).



n5is^^



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The plant was originally built in the 1950s by local owners to
supply local and regional manufacturers with polyvinyl chloride (PVC) ,
the petroleum-based prime ingredient of most plastics. In the 1960s a
multinational oil conglomerate purchased the operation but was subse-
quently ordered by the Federal Trade Commission and the U.S. Department
of Justice to divest its interests in the PVC market, since it had a
virtual monopoly. Acme bought the plant in the late 1960s, planning to
run it profitably since the market for PVC in New England was then very
good. But by 1970 Acme claimed to have lost many of its customers, even
those in New England, to larger, more efficient plants in the south that
could supply PVC cheaper. It turned out that shipment to New England
of raw petroleum was more expensive than shipping the finished product
to New England from the south. In addition. Acme did not hav5 its own
petroleum sources and relied on others for manufacturing input.

The outlook for the plant grew even dimmer when the following events
occurred in rapid succession:

o Japanese customers, developed in the late 1960s to replace

New England customers looking to the south, decided to purchase
elsewhere in the world market and do some of their own manufacturing,
o The 1974 energy crisis resulted in higher prices and lower

supplies of petroleum,
o The Occupational Health and Safety Administration (OHSA)
threatened to enforce its health rules more rigidly (PVC was
considered a possible health hazard) .
o The Union refused to accept the lower wage gains

and cooperative arrangements the company offered,
o Shipping costs were Increasing.



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According to an interview with the Director of Real Estate for Acme,
these factors "force [d] Acme to close the plant and sell the real estate."

All employees were terminated in December 1974, and the closed
plant was sold to a large corporation that was already producing in the
area. According to Acme, a four-month notice of closure was given;
employees received severance pay on the basis of seniority and were
helped to find new positions. It is worth noting that the company closed
another PVC plant in Florida that same year for similar reasons and is
now out of the PVC business altogether. As the Real Estate Director
said, "The plant [s] would still be open if [they] could make money."
Acme's Annual Report for 1974 stated that the plants were closed because
of "lack of resources" — i.e., oil. It is also notable that the decision
to close was made in January 1974 but was not announced to the employees
or union until September.

Methodology

Acme Corporation supplied us with a list of the 92 displaced
workers for whom it had records. They implied that this was the total
of the production employees, although the Union representative
from Providence, Rhode Island, stated that there had been 143 union
members at the plant at the time of shutdown. We were unable to verify
either figure, since the company records were unavailable,
and the Union did not have a list.

In the summer of 1978, we mailed a questionnaire (Appendix A) to
each of the 92 employees asking them for information on their emplo3anent
history since the shutdown, their training and socio-demographic characteris-
tics, and some of their general feelings about the impact of termination.



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2
Eighteen questionnaires (20 per cent) were returned in usable form. In

the spring of 1979, we called those who had not returned questionnaires
until we had another group of 17 former employees to whom we administered
a shorter telephone interview (Appendix B) .

The mail survey contained open-ended as well as short-answer questions.
We wanted to give the former employees ample opportunity to discuss
their experiences prior to and after the shutdown. Given that the question-
naire was mailed two and one-half years after the shutdown, the original
number of 18 usable responses was considered satisfactory. Nevertheless,
the supplementary telephone interview technique was chosen as a check
on the responses of the first group. Aside from differences in some
quantitative measures, the two groups had similar personal reactions
(see Appendix C for a comparison of the two groups) .



Overall, we believe the results of the survey provide reliable data on the
impact of this shutdown. The one area in which responses from
the two groups were significantly different was length of unemplojmient
after the plant closing. The mail survey respondents averaged 60 weeks
of continuous unemployment, while the phone respondents averaged 29.
Thus, data on expected length of unemployment after shutdown are incon-
conclusive, and assumptions about how individuals fare in the labor market
need to be Inferred cautiously. This seems to imply that non-response
is related to "successful" job-finding.



2
Three questionnaires that had only written opinions on the closing

without any personal data were also received.



-5-



Quantltatlve Results of the Mall Survey

On average, these Acme employees had worked 4 years and 11 months
at the company prior to the shutdown. They had an average age of 40.4 years.
Thirty-eight per cent (7 of 18) had less than a high school education, while
33 per cent had education beyond high school at the time of the shutdown.
We can characterize these respondents as average male manufacturing workers
in New England, earning a bit less than their counterparts in other manufacturing
operations at the time of the plant closing.

At the time of displacement, these employees faced an unfavorable
labor market. The unemployment rate in Massachusetts was 10 percent, with
the rate in the Fall River area even higher. Data gathered on the length of unemploy-
ment following the shutdown support our assertion that the economic burdens
assumed by displaced workers far outweigh those of other unemployed workers. On averag
it took the respondents 60 weeks to find a new position; the range was
26-156 weeks. They collected unemployment compensation for an average of
41 weeks, with a range of from 14 to 68 weeks, the maximum available under
the law at that time. Sixty-one per cent (11 of 18) found new jobs before
their unemployment compensation ran out, suggesting that they preferred work
over receiving unemployment compensation.

Half of the respondents admitted to receiving some other form of
public assistance besides unemployment insurance. All of this group
obtained food stamps; an additional five had looked to other services
offered through the welfare system. On several questionnaires the respondents
had begun to fill in the public assistance questions and then stopped.
We believe they were reluctant to admit needing this help.

All of the respondents were male; 16 of 18 were married and had



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3.4 average dependents at the time of shutdown. Only five had spouses
working full time; one reported that his wife worked part time. Therefore,
for two-thirds of the respondents, family income dropped to sole reliance
on unemployment compensation when the plant closed. Five respondents
reported that, after the closing, their spouses were "forced" to obtain
jobs and succeeded in doing so. These spouses worked exclusively in clerical
and apparel-processing positions.

This finding reaffirms the claim often made in labor force literature that
wo'men enter the work force not only because they want to, but also because
they have to. All of those who reported spouses working after the shutdown
said that they were still employed, at least part time, even though the
respondents had obtained new employment. Subsequent to the shutdown, then,
the percentage of families with two earners increased from one-quarter to
over one-half.

One-third of the respondents indicated they had obtained additional
training after the shutdown (through the CETA programs in the area), but
only one person believed that this training had aided him in finding new
employment. Two of the men worked on CETA-sponsored Public Service Employment
(PSE) jobs as their first position after the shutdown.

These workers were not geographically mobile. (The effects of displace-



me



nt on workers who relocated after the plant closed were outside the bounds



3
of our study.) Only one respondent reported moving. The rest remained

in the same residence, making the best of the situation. None indicated

that the company offered them a chance to transfer to another Acme plant.

Significantly, 55 per cent reported that they would have moved to another

job with Acme had one been offered. This was a direct contradiction of the

company representative's statement that the workers were offered transfer

opportunities .



^ Due to the two and one-half year time span between the closing and our
survey, we were unable to determine the number of workers who moved away
from the area.



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In addition to having difficulty finding new employment, the workers
found it hard to keep the jobs that they did find. Even though they
had been employed by Acme for an average of almost 5 continuous years prior
to the shutdown, they held an average of 2.5 jobs over the two and one-half
years between the closing and our survey. Displacement caused these
workers long-range problems in their careers and work patterns.

In addition, the respondents' recent positions were at lower real wages
than their Acme job. During the last months at the plant, the
employees' average hourly earnings were $4.52 with a range from $3.69 to
$5.57. At the time we surveyed them, these workers had an average hourly
earning of $4.98 — a ten per cent increase in nominal earnings. However,
using the 1975 earnings as the base, the workers actually experienced an
11 per cent drop in real hourly earnings over the two and one-half year period.
Moreover, they worked fewer hours at the new positions. Our findings
revealed a serious and significant drop in real personal income for these
workers after the shutdown. This is somewhat offset by the fact that
over half of the respondents had spouses in the labor force, which may
have lessened the impact of the earnings drop on the overall family income.

The respondents all held positions at Acme in the semi-skilled
operative category. Only three were not directly involved in production, since they
were in maintenance and repair. After the shutdown they all found new
work in a wide variety of occupations. Only one reported being hired by

the comoany that boueht the abandoned plant, while

five found initial re-employment in a textile mill. The remainder worked

in various manufacturing industries, execpt for two who went to the public

sector, one as a mailman and one as a civil servant in the local municipal

building.



-8-

We asked the respondents to rate their jobs since the shutdown
with their old positions at Acme. Half of the group reported that they
believed the job at Acme was a better position, despite the possible health
hazards of working with PVC. It is notable that there was no correlation
between those who rated their new position higher and those who received
increases in real wages in their new position.

A summary of the quantitative data is found in Table 1.

Table 1; Summary Data from the Mail Survey (N=18)



Average age

Educational level at time of shutdown

less than high school

high school

more than high school
Additional traning after shutdo\m

yes

no
Did training aid you in obtaining employment?

yes

no
Length of unemployment since shutdown

range

average
Number collecting unemployment compensation

range

average
Present emplojonent status

employed full time

employed part time

unemployed
Nature of business of present employer

private

public
Nominal wage change

increase

decrease

no change
Number who rate Acme highest in job

satisfaction (N=ll)
Average hourly wage rate at Acme

range
Average hourly wage rate at present job

range
Real average hourly wage rate (1975=100)

Acme

present or most recent job
Average number of years worked at Acme

range



A0.4 years

7
5
6

6
12

1
5

20-156 weeks

59.6 weeks
18

12-68 weeks

40.7 weeks

14
1
3

17
1

8 (47%)
5 (29%)
4 (23%)

9
$4.52

$3.69-5.57
$4.98
$3.00-6.26

$4.52

$4.03

4 years 11 months

1-10 years



-9-

A summary of the quantitative data for the telephone survey is
in Table C-1 of Appendix C.

Results of the Open-Ended Questions

The open-ended questions elicited several common threads in
responses, with no significant differences between the mail-survey group
and the phone-survey group.

We discovered, for example, that more than half of the workers

who found jobs within six months of the shutdown found them through

friends. One man said, "Isn't that the way everything happens in this

country?" Certain complaints were also shared. For instance, many of the

workers blamed the shutdown on the government's enforcement of health

standards. The men simultaneously damned and praised the government

standards, because they are aware of the dangers of chemical manufacturing

work, but they nonetheless would have preferred the jobs. Three

of the men complained about illegal aliens working in the area and

keeping wages low. Several others were angry about the treatment they

received at the Division of Employment Security. One said:

Employees at D.E.S., especially the Fall River office, are
most inconsiderate and feel that they are superior. They are
impolite, arrogant, and they definitely feel that they are doing
you a favor when you apply for unemployment benefits. And if it
was not for the unemployed, they wouldn't have jobs.

A common complaint of older workers was the problem of getting re-
hired. Several noted that employers "knew the health risks were high and
were afraid they might get stuck with the bill." These employers may have
feared that the long-term results of exposure to PVC at the Acme plant
were due to show up in these older men. Another of these workers stated,
"Only the young guys got jobs because the older ones were workmen's
compensation risks."



-10-



Summary of Results

Overall, the displaced workers suffered severe dislocation problems.

They remained unemployed, on average, for over a year and were forced to

take positions that paid a lower real wage than what they had made at Acme

Moreover, family work patterns were altered significantly, as 25 per

cent had their spouses forced into employment. The collection of public

assistance in the form of unemployment insurance, food stamps, housing

assistance andAFDC-UF was a psychological burden on them, as well as

a financial burden on state and federal taxes. (The community suffered as

well, from an eroded tax base and the other costs of having more unemployed

people competing for positions in the local labor market.) The dislocated

workers consistently mentioned the shock and disbelief they felt on hearing

of the closure and further surprise at the problems they had in finding

new employment .

According to the respondents, neither Acme nor the Union was able to help them

find new positions, although the company did hire a placement consultant. Further,

the Division of Employment Security was able to supply a new job in only one

of the original eighteen cases. Friends' references led to jobs for 7 other

workers.

Though studies show worsened health — physical and psychological —

4
for those who are displaced by shutdowns, our health findings were incon-
clusive. Only two of the eighteen reported worsened health; one reported
an improvement after being away from PVC manufacturing (his dizzy spells
had ceased within two months). It was not possible for us to assess the
psychological impact of the closing, but if the tone of the open-ended
responses is any clue, workers felt considerable bitterness and resentment



Sidney Cobb and Stanislav Kasl, Termination: The Consequences of Job Loss ,
U.S. Department of Health, Education and Welfare, NIOSH, Paper 77-224, 1977.



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toward both the corporation and the union. The former was criticized for
not offering notice far enough ahead of time to allow for a more orderly
transition; the latter for not being informed enough to have aided the
employees in preparing for the shutdown or possibly intervening to prevent
it.

Recommendations

Currently, workers bear a disproportionate share of disinvestment
hardships. Personal misery and dislocation do not have to happen to as great
an extent as they did in the Fall River area. Public policy needs to be directed

toward the prevention of closings and the cushioning of their impact when
prevention is impossible. Acme was not moving the plant to
decrease labor costs or take advantage of foreign production and tax breaks.
Acme pulled out of the PVC business altogether. There is no way now to
determine whether the operation was unprofitable or if it was just
not up to standards set at corporate headquarters. Defining a "justifiable"
closing from a public welfare point of view is perplexing; nonetheless, it
is mandatory. Specific rules and procedures must be established in order
to distribute the burdens of a closing equitably.

After reviewing the proposed and existing legislation as well
as the literature on impacts of plant closings (see bibliography for the
latter), we have developed the following niinimum guidelines for legislation:

o Provision for mandatory advance notice time

o Required financial disclosure by the firm contemplating closure,
relocation or substantial cutbacks in emplojrment

o Mandatory severance pay



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In the Acme study we found that the corporation did not provide
sufficient advance notice of the closing, even though they made the
decision to close about a year prior to the actual event. The union
was not informed, nor were any state or local agencies. Though it
may be that even the strictest public policy could not have
PEevented closure, the regrettable fact is that we will never know.
The kinds of economic and personal problems endured by displaced workers
are simply too great to be left unattended by legislation. After all,
U.S. corporations have not ceased locating in Western Europe or Canada
because of their various laws on closings.

The United States is presently the only country among the Western
European and North American economic powers that does not have specific
legislation on plant closings. Presently, the European Economic Community
(Common Market) is issuing a binding directive to its member countries
that will provide minimum standards for national legislation affecting corporate
plant closings and major layoff decisions^. The directive requires advance
notice and prior consultation with government and trade unions. In addition,
it establishes minimum severance pay standards. Sweden, which is not
a member of the Common Market, has already implemented such legislation.
Canada's standards exceed even Europe's. Thus it is hardly unreasonable
to say that the United States has both a humane and an economic obligation
to pass legislation that will cushion if not eliminate the devastating
impacts of plant closings on workers, communities, and the public in general.



See United Auto Workers, United Steel Workers of America, and the International
Association of Machinists and Aerospace Workers. Economic Dislocation:
Plant Closings, Plant Relocations, and Plant Conversion , Joint Report of
the Labor Union Study Tour Participants, May 1, 1979 (pamphlet).



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In this country, several states have legislation pending on plant
shutdowns. Ohio's proposal is most notable. It came directly as a response
to the crippling Youngstown Sheet and Tube Company shutdown, which put
5000 people out of work. The Ohio Public Interest Campaign (OPIC) , with
the backing of the AFL-CIO, put together a bill that would require companies
that are closing, relocating, or substantially reducing their work force
to provide employees with two years' advance notice, severance pay,
and the community with aid through a community assistance fund.

In Michigan, legislation is being considered that will mandate
severance pay and provide a state-paid staff to serve full time as investigators
of threatened plant closings. This staff would also look into worker
interest in purchasing these plants; if the workers are interested the state
will assist them in putting together a funding package. Maine already has
a law mandating severance pay, and Wisconsin required firms to provide at
least 60 days' notice if they are going to merge, relocate or close operations.
Massachusetts, as a result of the Acme closing and literally hundreds of
others over the last decade, is now drafting legislation requiring advance
notice, severance pay, and provisions for worker buy-outs.

Unfortunately, law-making on the state level alone is not sufficient
and may serve merely to drive corporations out of states with legislative
requirements. Moreover, the costs of shutdowns are felt far beyond the local
level. Policy making on the national level is undoubtedly the most appropriate.
The goal is to provide legislative standards that will eliminate compe-
tition among states for corporate start-ups and relocations. In addition,
a certain required grace period would be given, because it often
takes four or five years to discover whether a plant will become profitable.



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By sharing the burdens imposed by closings, we can alleviate their devastating


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Online LibraryThomas A BarocciDisinvestment in Massachusetts : a case study of personal and economic impacts → online text (page 1 of 2)