Permanent layoffs and displaced workers: Cyclical sensitivity, concentration,
and experience following the layoff
by Garnett Picot and Wendy Pyper
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 055
Concern about permanent layoffs and the experiences of displaced workers
is high because of the restructuring in firms currently taking place,
and the effect of changes in international trade on some industries,
often leading to layoffs. Our understanding of permanent layoffs has
been hampered by the lack of appropriate data until recently. This paper
uses two relatively new sources of data to examine
- the variation in permanent layoffs over the business cycle, primarily
to determine their significance during expansionary periods when decreases
in aggregate demand play little role in the layoff process,
- Where permanent layoff are concentrated in the economy during expansionary
periods when restructuring and the competitive process play the major
role in layoffs, and
- the labour market experiences of displaced workers following the
layoff.
There is a large volume of permanent layoffs during both expansions
and contractions...they are not as cyclically sensitive as hires, quits
or temporary layoffs, other means by which firms adjust their labour
forces. The competitive process appears to play a large role in generating
such a large volume of permanent layoffs (1 million), even during expansions.
The layoffs are highly concentrated in particular parts of the economy,
particularly in small firms. The majority of workers laid off located
a new job with little or no unemployment often experiencing wage increases.
A significant minority, however, were unemployed for a year or more
and /or took large wage cuts. There was tremendous heterogeneity in
the post-displacement outcomes for workers.
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