Academic journal article Economic Perspectives

What Do We Know about Job Loss in the United States? Evidence from the Displaced Workers Survey, 1984-2004

Academic journal article Economic Perspectives

What Do We Know about Job Loss in the United States? Evidence from the Displaced Workers Survey, 1984-2004

Article excerpt


A defining characteristic of the U.S. labor market is its fluid nature. Half of all new jobs (worker/employer matches) end in the first year and, at any point in time, about 20 percent of workers have been with their current employer for less than one year (Farber, 1999a). (1) This fluidity allows rapid reallocation of workers across sectors in response to demand shifts, and the relatively small direct costs to employers of laying off workers encourages hiring in the face of uncertain future demand. Rates of employment growth in the U.S. have dwarfed those in Western Europe in no small measure because of the relatively small costs to firms of shedding workers in the U.S. compared with their counterparts in the European Union. However, this flexibility can impose substantial costs on the workers who lose jobs.

My goal here is to characterize the level of job loss and the costs to job losers over the 1981-2003 period and to look for changes over time, both cyclical and secular, in the types of workers who lose jobs and the costs borne by various types of job losers.

Perhaps the most comprehensive source of information on the incidence and costs of job loss in the United States is the Displaced Workers Survey (DWS), administered every two years since 1984 as a supplement to the Current Population Survey (CPS). In this article, I incorporate the data from the latest (January 2004) DWS, covering the period through 2003. (2) The tight labor market of the 1990s saw a dramatic reduction in the civilian unemployment rate from an average of 7.3 percent in the 1980s to a low of 4.0 percent in 2000. The annual average unemployment rate rose steadily through the 2001 recession and beyond, reaching 6.0 percent in 2003. Job loss and worker displacement are of particular concern in this period, given the perceived continuing general weakness in the labor market, fears of worker displacement due to import competition and outsourcing of jobs, and the substantial costs borne by job losers.

There are three important issues of measurement and interpretation that arise when one compares job loss rates calculated using the DWS over time. First, the DWS asks only about a single involuntary job loss. The survey does not capture multiple job losses by the same worker. Neither does it capture worker terminations "for cause." The survey is meant to capture worker terminations as the result of business decisions of the employer unrelated to the performance of the particular employee (for example, a plant closing, a layoff, the abolition of a job). Thus, the measure of the job loss rate that I calculate is the fraction of workers who lost at least one job not "for cause" in the relevant period rather than the rate of destruction of worker-employer matches.

From 1984 to 1992, the DWS asked about job separations in the previous five years, while the later DWS asked about job separation in the previous three years. The measure of job loss that I use is adjusted to account for this change in the recall period so that all rates are reported on a three-year basis. This adjustment is detailed in Farber (1997).

The basic wording of key questions has changed since the inception of the DWS in 1984. This may have affected whether survey respondents would report a job separation in a particular circumstance as an involuntary separation in one survey but would not report a separation in the same circumstance as involuntary in another year. In Farber (1998) and Farber (2004), I use additional data from debriefing questions asked of a fraction of DWS respondents in 1996, 1998, and 2000 to investigate how changes in the wording of the key question may have affected the likelihood that a worker reported a particular separation as an involuntary job change. I use the results of that analysis to calculate re-weighted job loss rates that I present in this study.

Based on the three-year rates of job loss that I computed, adjusting for the change in the recall period and for changes in the wording of the key job loss question, I find that the rate of job loss has followed a roughly cyclical pattern between 1981 and 2004. …

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