In this time of shrinking payrolls, the U.S. safety net is being tested. And it is failing, in ways that ultimately could hurt employers.

I’ve previously touched on skimpy unemployment payments in America as well as gaps in U.S. unemployment coverage. Yet another weakness in our web for catching displaced workers centers on notification of plant closures and layoffs.

There is a law designed to give workers 60 days’ warning when their employer shuts down a plant or lays off a large number of employees. Such advance notice can play a crucial role for both workers (who can prepare financially for unemployment and take steps to find new work) and local governments (which can reach out quickly to affected workers with job services).

But the Worker Adjustment and Retraining Notification (WARN) Act, passed in 1988, has proved to be fundamentally flawed and increasingly unhelpful to displaced employees.

In 1993, a federal study on WARN found that about half of the employers with 100 or more workers that closed or had a layoff in 1990 were not required to provide notice.

Ten years later, a similar federal study found that about one-quarter of the 8,350 plant closures and mass layoffs in 2001 appeared to be subject to WARN’s advance-notice requirements.

Not only does the law seem to be protecting fewer workers over time, but employers appear to violate the law frequently. The 2003 study found that employers provided notice for only about one-third of layoffs and closures that appeared subject to WARN requirements.

Among the explanations for these alarming statistics is employer confusion over the law.

Loopholes also play a key role. One provision in particular gives many employers a pass on WARN. Firms are exempt from WARN’s requirements if they lay off 50 to 499 full-time workers at a single site and the number laid off is less than one-third of the full-time workforce at that site.

That “one-third” rule may have made more sense during dramatic manufacturing job cuts of earlier decades. But in contemporary corporate restructurings, where 10 to 15 percent of the workforce often gets lopped off, the rule amounts to a major barrier to giving workers and governments a heads up.

It also should be said that employers in many instances are giving advance notice of layoffs. In fact, the 2003 federal study found employers provided 5,349 WARN notices, but there were only 1,974 plant closure and mass layoffs that appeared to meet the WARN criteria.

That discrepancy may result from the way the study relies on unemployment insurance claims to determine the number of mass layoff events, yet there’s evidence that fewer than half of unemployed people apply for unemployment insurance benefits.

As a result, it may be the case that employers are complying with the law more like 80 percent of the time. Still, a 20 percent rate of breaking the law on notification is a problem.

Last year, the Toledo Blade newspaper examined the WARN Act and concluded the law “is so full of loopholes and flaws that employers repeatedly skirt it with little or no penalty.” The newspaper also said that since WARN was passed, “employers have laid off tens of thousands of workers nationwide with little or no notice.”

There are plenty of ideas for fixing WARN. A bill to lengthen the notification period, broaden the number of businesses subject to WARN requirements and authorize the Department of Labor to enforce the law was introduced last year by Sens. Sherrod Brown, D-Ohio; Hillary Rodham Clinton, D-New York; and Barack Obama, D-Illinois, the presumptive Democratic presidential candidate.

Legitimate employer concerns surround proposed WARN reforms. Lowering the layoff threshold to as few as 25 employees could cause hardship to struggling small businesses.

And we ought to put at least as much if not more emphasis on helping workers rebound from job loss—steps such as better unemployment insurance benefits and retraining programs.

But ultimately, a sound safety net requires some measure of advance notice for major job cuts. Without that, worker transition to new employment—possibly with higher skills—is less than optimal. The level of economic insecurity felt by workers is heightened—which translates into lower consumer confidence. And there’s an effect on the already tattered fabric of trust between workers and employers.

It seems that fabric tore quite literally for Joe Aguiar last year.

A maintenance worker at a fabric company in Massachusetts, Aguiar was given just a day’s notice that his company was shutting its doors. Aguiar, who testified at a congressional hearing in May, said that after a 27-year career at Quaker Fabric he now works a few hours a week cleaning out factory buildings where he used to have a regular job.

“Employees should not be treated like the trash that I take from the empty Quaker factories and put out on the street,” he said in his written testimony.

If employees can be treated like garbage when they lose a job, it may be hard for them to develop the kind of loyalty and engagement that today’s employers seek the next time around.

Washington took a smart, compassionate step in extending unemployment benefits last week. But while federal leaders giveth, they also have taken away monies that help get unemployed workers back on the job.

Last year, Congress approved a rescission of $250 million in Workforce Investment Act funding. That is, the federal government yanked back money it had given to the states.

The missing money is seriously hurting the network of one-stop career centers that states run, says Larry Temple, president of the National Association of State Workforce Agencies professional group. Temple, who also serves as executive director of the Texas Workforce Commission, says that in his state alone, at least 15 centers and satellite offices are closing as a result of the take-back. The closures will lower the number of workforce centers and satellite offices to fewer than 250 in Texas, which lost a little more than $10 million in the rescission.

One-stop centers offer assistance such as skills training, career planning help, job-seeking strategies and help preparing for job interviews.

To Temple, providing extra unemployment insurance benefits while paring back services available through public career centers makes little sense.

“That’s where the rubber meets the road,” he says.

The shutting of one-stop centers comes after another public employment resource was killed by federal authorities last year. Despite evidence that it provided a useful, cost-effective service, public online job board America’s Job Bank, a public online job board was axed by the Bush administration.

Federal workforce funding is caught up in a debate about whether the current system of state and locally run programs is too bureaucratic. The Bush administration has called for replacing it with “career advancement accounts” designed to give workers more control over retraining dollars.

There’s evidence, though, suggesting the existing system can be effective.

However the debate plays out, one thing is clear: Washington has come up with a partial solution to the growing problem of unemployment today. And the more important piece of the puzzle may be missing. As Temple puts it: “We’re treating the symptom, and we’re not going at the cause.”

Today’s grim job loss figures are a reminder that the U.S. safety net remains porous for many workers—a problem that could come back to haunt businesses.

There was good news earlier in the week on the unemployment insurance front, when President Bush signed into law a measure that extended jobless benefits. But evidence suggests many out-of-work Americans are not getting basic unemployment benefits in the first place. And it appears such out-of-luck workers are frequently among the most vulnerable in the economy—low wage earners, part-time workers and women.

A report from the U.S. General Accounting Office in 2000 found that the unemployment insurance system plays a “limited” role as a safety net for low-wage workers. The percentage of unemployed people applying for benefits declined from about 50 percent in the 1950s to about 33 percent in the 1990s. What’s more, the report shows, eligibility rules around previous earnings and part-time employment hurt low-wage and part-time workers. In 1995, only about 18 percent of unemployed low-wage workers were collecting unemployment insurance benefits, while about 40 percent of the higher-wage unemployed collected benefits.

Although the GAO report is nearly a decade old, problems it identified persist, according the National Employment Law Project advocacy group. Just 35 percent of the unemployed received jobless benefits in 2006, according to NELP.
 
NELP has backed legislation to “modernize” the unemployment insurance system, which dates to the 1930s.

A measure introduced in the U.S. Senate last year would encourage states to adopt reforms such as counting applicants’ most recent earnings (which would help low-wage earners qualify for benefits), extending unemployment benefits while workers are in training programs and allowing a worker to collect benefits if they left their job for a compelling family reason, such as domestic violence.

Getting behind such legislation may not, at first blush, seem to be a priority for corporate America. But closing gaps in the safety net along these lines would translate into a better trained workforce as well as stronger consumer confidence and spending. All important results for companies in the midst of a teetering economy. As it stands, with 62,000 additional payroll jobs erased in June, the confidence of Joe and Jane Paycheck is likely to keep dropping.