A post by Henry Farrell over at Crooked Timber threatened to turn into a debate over the facts concerning layoffs and unemployment (see comments by kidneystones and subsequent discussion), but didn’t seem like an appropriate place to have this discussion.
The question arose, what does a layoff mean? There were people (I don’t know who they are, how old they are, what they do for a living, or even what country they live in, as they were using the silly sort of pseudonym) who seemed to believe some kind of implausible things—as best I could determine (they weren’t all entirely clear), they seemed to include the beliefs that being laid off always marks the end of a worker’s or professional’s career, that a person’s skills deteriorate to the zero point almost immediately after a layoff, that new skills can only be acquired in a formal degree program and at the beginning of a career.
Now, it’s true that if you are an experienced auto designer or engineer or manufacturing worker at one of Detroit’s Big Three auto manufacturers, and you lost your job in the recent unpleasantness, it is unlikely you will be able to get a similar job. It isn’t impossible, because probably the Big Three will need to hire a small number of senior people over the next several years, and so will the foreign automakers who have plants in the United States, and your skills and personality and so on may well be a good match, but there will be so few of these jobs, especially if you don’t want to relocate, that this is not likely. But the United States’ automobile industry has been stagnant for decades and is not likely to rejuvenate itself. There are many other industries that taken together employ more people than the Big Three. Firms in those industries have layoffs for all sorts of reasons: poor cash flow that requires expenses to be reduced, poor numbers generally that require quick action to restore confidence from the stock market, decisions to cancel products or get out of attempted lines of business that can most readily be taken by letting go all the people who worked on them, decisions to outsource that are accomplished in the same way.
The first company I worked for had layoffs almost every year for more than a decade, starting before I worked there and continuing after I voluntarily left. The second-to-last company I worked at, before leaving to have a baby, laid off everyone involved with the product line I worked on, in a process taking nearly a year. I survived the first round of layoffs, presumably because I was fairly new and my pay was lower than most of my colleagues’, then was let go three months later. A small number of people were kept on for another six months, with a retention bonus if they stayed until their scheduled termination date. The industry press for the next couple of years indicated that the layoffs there were continuing. The first of those companies hung on for almost a decade after I left (that is, approximately fifteen years after the first layoffs), to be bought out by another big corporation. The second is still around, having shifted out of a market in which it was in last place, with sales declining toward zero, and into a market where it had some hope of grabbing a toehold and the kind of market share that would permit it to survive (long enough, probably, to bought out by one of the big firms). These were small-to-medium sized corporations, employing from several hundred people, in the latter case, to well over ten thousand (down to a few thousand by the end), in the former.
In between, there was at least one downturn (the one beginning, for the high tech industry, in early 2001) that lasted long enough that there were people out of work longer than they could afford to wait. And that was before the mortgage crisis, so lots of people would probably not be able to wait as long as they might have before, if there were to be another downturn in this industry. (BTW, I knew at the time that people were getting bid out of their price range on deals they felt they couldn’t turn down, but five percent or less down? On a first house?) But layoffs are a fairly normal thing for tech professionals, as they are for many other industries. They aren’t desirable, and hopefully they don’t occur too many times in a person’s career, but they don’t necessarily signal the end of the world. Layoffs are how firms shed workers they no longer need, releasing them, in a fairly inefficient way, back into the workforce. Layoffs are also what happens when firms close locations, end lines of business, or fold altogether. And in high tech, these things happen with some frequency.
One of the commenters at the Crooked Timber thread said s/he hoped s/he would know things were getting bad so s/he could get out before a layoff occurred. But what if things were getting bad only a year after s/he had started a new job? What if s/he had real responsibilities on a project and would face the question, “Why aren’t you staying to see things through?” S/he says s/he would not take unemployment insurance (though it sounds like s/he might not understand the difference between UI and welfare), no matter what, because taking government money is a sign of shiftlessness. S/he sounds like someone who would see excessive job-hopping as equally a sign of shiftlessness, so I’m not sure s/he would really be able to follow through if such a thing happened to him or her.
There may well be inefficiencies in the labor market, but given that there is in fact a labor market, and given the fairly widely understood facts about unemployment and hiring, expecting there to be zero unemployment in everybody’s history is pretty unrealistic.
Things are probably different in an economy or a market that is dominated by one, or maybe two or three, 800-pound gorillas, in every subset of the market—as opposed to being divided into several sub-markets, each with a handful of players. In a one-firm economy, unlike with what we have now, rather than laying people off, they can be moved around—but leaving that one firm would be the equivalent of leaving the field entirely. In that case, being laid off is less like belonging to a chess club and losing one game, and more like being expelled once and for all from a large building with only one entrance. Of course, there are other differences, and there is a reason that innovation comes from smaller firms more often than from the giant conglomerates.
Feel free to add your experience or opinions in comments, about high tech or any other industry.