NCPA - National Center for Policy Analysis

Full Employment, Layoffs And Economic Vitality

July 22, 1999

It seems paradoxical that company executives are complaining about labor shortages at the same time that businesses are announcing record numbers of layoffs. But economists assure us the situation is not contradictory at all. In fact, it is an indication of long-term economic vitality.

"Sometimes a company must take a step backward by cutting part of its labor force in one area in an effort to move two steps forward into more profitable areas of development," explains John Challenger, of the outplacement firm of Challenger, Gray & Christmas.

  • According to the firm, layoff announcement in the first half of this year are running about 40 percent higher than in 1998 -- which was a record year.
  • At the same time, joblessness has fallen to just 4.3 percent as of June -- near a 30-year low.
  • Announced layoffs are currently running at about 60,000 a month.
  • But that figure pales into insignificance when one considers that 13 million workers change their employment status in a typical month, according to the Bureau of Labor Statistics.

That may even be an underestimate, since it does not include workers who manage to change employers within a month and those who change jobs within the same company.

University of Chicago economist Steven Davis estimates that 10 percent to 12 percent of jobs disappear in a typical year -- a number that has not changed in decades.

Source: Michael M. Weinstein, "Cream in Labor Market's Churn," New York Times, July 22, 1999.


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