Life after the High-tech Downturn: Permanent Layoffs and Earnings Losses of Displaced Workers

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by Marc Frenette

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The high-tech sector was a major driving force behind the Canadian economic recovery of the late 1990s. It is well known that the tide began to turn quite suddenly in 2001 when sector-wide employment and earnings halted this upward trend, despite continued gains in the rest of the economy. As informative as employment and earnings statistics may be, they do not paint a complete picture of the severity of the high-tech downturn. A decline in employment may result from reduced hiring and natural attrition, as opposed to layoffs, while a decline in earnings among high-tech workers says little about the fortunes of laid-off workers who did not regain employment in the high-tech sector. In this study, I use a unique administrative data source to address both of these gaps in our knowledge of the high-tech downturn. Specifically, the study explores permanent layoffs in the high-tech sector, as well as earnings losses of laid-off high-tech workers. The findings suggest that the high-tech downturn resulted in a sudden and dramatic increase in the probability of experiencing a permanent layoff, which quadrupled in the manufacturing sector from 2000 to 2001. Ottawa–Gatineau workers in the industry were hit particularly hard on this front, as the permanent layoff rate rose by a factor of 11 from 2000 to 2001. Moreover, laid-off manufacturing high-tech workers who found a new job saw a very steep decline in earnings. This decline in earnings was well above the declines registered among any other groups of laid-off workers, including workers who were laid off during the 'jobless recovery' of the 1990s. Among laid-off high-tech workers who found a new job, about four out of five did not locate employment in high-tech, and about one out of three moved to another city. In Ottawa–Gatineau, about two in five laid-off high-tech workers left the city.

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