NCPA - National Center for Policy Analysis

Layoffs Not A New Phenomenon

April 1, 1996

Economic research shows that, contrary to headlines that treat corporate layoffs and job insecurity as new developments, they are part of a normal process of change in a dynamic market economy.

A University of Chicago economist, Steven J. Davis, reports that: Over a typical 12-month period, one in 10 U.S. manufacturing jobs disappears -- and does not open up again at the same location within the following two years. Other jobs, however, are being created at the same time.

For example, there was no change in the number of factory jobs in 1988, but 1.6 million jobs disappeared that year -- and 1.6 million jobs were created. The reasons for plant shutdowns and layoffs overwhelmingly have to do with individual products, plants and companies -- not industries, regions or trends.

However, the proportion of permanent layoffs has been rising over time. He found that while temporary layoffs accounted for most of the unemployment increase during the recession in the mid-1970s, in subsequent recessions the "layoffs" were largely permanent.

Source: Rob Norton, "Job Destruction/Job Creation," Fortune, April 1, 1996.


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