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

View the most recent version.

The high-tech sector was a major force behind the Canadian economic recovery of the late 1990s. The bubble burst in 2001, however, 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 address both of these gaps in our knowledge of the high-tech downturn by examining permanent layoffs in the high-tech sector, as well as earnings losses of laid-off high-tech workers.

To do so, I use a unique administrative data source containing information on workers who were laid off from firms and their earnings following the layoff. 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 1.9% in 2000 to 7.7% in 2001). Ottawa–Gatineau workers in the industry were hit particularly hard on this front, as the permanent layoff rate rose from 1.5% in 2000 to 16.0% in 2001. In the services sector, the permanent layoff rate almost doubled nationally, from 2.2% in 2000 to 4.2% in 2001.

Moreover, laid-off manufacturing high-tech workers who found a new job saw a very steep decline in earnings. Specifically, workers who were laid off from their manufacturing high-tech jobs in 2001 saw a decline of $11,700 in earnings over the period from 2000 to 2003. By contrast, their co-workers who did not lose their jobs at this time saw an increase of $12,900 (a difference of $24,600). This decline in earnings was well above the declines registered among any other group of laid-off workers, including workers who were laid off during the 'jobless recovery' of the 1990s.

In addition to the economic consequences of experiencing a permanent layoff and suffering a loss of earnings, the high-tech downturn affected workers in other ways. Among laid-off high-tech workers, 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. Mantler et al. (2005) conducted a survey of employed and unemployed high-tech workers during the downturn (in fall 2001 and winter 2002). Not surprisingly, they found that unemployed high-tech workers reported higher levels of stress than employed high-tech workers.

View the publication Life after the High-tech Downturn: Permanent Layoffs and Earnings Losses of Displaced Workers in PDF format.

You need to use the free Adobe Reader to view PDF documents. To view (open) these files, simply click on the link. To download (save) them, right-click on the link. Note that if you are using Internet Explorer or AOL, PDF documents sometimes do not open properly. See Troubleshooting PDFs. PDF documents may not be accessible by some devices. For more information, visit the Adobe website or contact us for assistance.