Job displacement in the time of COVID

The world just recovered from the great recession of 2008-2010 and when Donald Trump was elected, and he moved America to a more isolationist position, which brought uncertainty to the world. In 2020 COVID-19 hit and the world was faced with economic uncertainty. For those thinking about retirement, this is one more blow to the idea of retirement.

In 2013 the OECD wrote a report on how to help workers that were displaced  in 14 countries because of the recession to get back to work. These workers were displaced because of involuntary job loss due to economic factors such as economic downturns or structural change and the lessons learned may be of interest as we move out of 2020 into 2021.

The following is from the executive summary. Some workers have a greater risk of job displacement and are more likely to experience poor post-displacement outcomes than others. In most of the countries examined, older workers and those with low education levels have a higher displacement risk, take longer to get back into work and suffer greater (and more persistent) earnings losses. While youth also have a higher risk of displacement than prime-aged workers, they fare better afterwards. Young workers generally find work relatively quickly after displacement, often in jobs with greater skill requirements than their previous jobs. Women are generally no more likely to be displaced than men, once other factors such as the type of contract they hold before displacement are considered. However, women are more likely than men to become disconnected from the labour market and experience longer spells of inactivity after displacement.

The extent of earnings losses after displacement varies substantially across countries. Earnings losses tend to be low in the Nordic countries, but much larger in the other countries examined in the report. Most of the loss in annual earnings after displacement can be attributed to time spent out of work rather than to lower wage rates upon re-employment.

In most of the countries examined, men suffered from bigger and more persistent earnings losses than women, despite women taking longer, on average, to return to work. Older workers and those who did not complete secondary school also tend to suffer greater-than-average earnings losses after displacement.

As well as lower earnings, re-employed displaced workers are more likely to work in part-time or non-permanent jobs than prior to displacement, and work shorter hours on average. Other measures of the quality of post-displacement jobs, such as the incidence of work at non-standard times, the availability of paid leave and whether workers have managerial responsibilities, also suggest a decline in job quality after displacement. Some of this effect may be due to the loss of seniority that displacement brings, as job quality tends to improve with longer tenure.

Displaced workers tend to use fewer mathematics, cognitive, interpersonal, and verbal skills and more craft and physical skills in their pre-displacement jobs than the average employee. This suggests that they may be ill-equipped to take advantage of job opportunities in expanding sectors after displacement. 

Nevertheless, most displaced workers who are re-employed find jobs that use similar skills to their pre-displacement jobs, even if they move to a new occupation or industry. Even among those who experience a significant change in skill use following displacement, many move to jobs with higher skill requirements than their former jobs. However, a small sub-set of workers experience “professional downgrading”, where their new jobs use far fewer skills than their previous jobs. Those who suffer professional downgrading experience significant losses in math, verbal, cognitive and interpersonal skills, modest gains in the use of craft skills and significant increases in the use of physical skills.

Changes in skill use after displacement explain some, but not all, of the earnings losses experienced by displaced workers.

Changes in an industry also appear to matter, suggesting that the loss of job-specific skills plays a role alongside changes in the use of generic skills.

These findings help identify several policies issues to be explored in future work. 

First, are policies that require large firms to provide re-employment services to displaced workers justified? On the one hand, this report shows that workers in smaller firms have a much higher risk of displacement than those in larger firm, suggesting that general active labour market programs are needed. On the other hand, while displacement is more likely in smaller firms, the number of displaced workers is generally larger in larger firms, possibly justifying existing obligations applying to the latter.  

Second, what type of re-employment assistance and training is best suited to help displaced workers find work? findings in this report suggest that not all displaced workers may need retraining to find a new, high-quality job as not all changes in industry or occupation after displacement lead to a significant change in the skills used at work. However, a small group of displaced workers moves to a job with significantly lower skill requirements, leading to professional downgrading and more sizeable earnings losses, pointing to the need both for skills assessment at unemployment entry and either retraining or job-search support to improve the match between skills and job requirements. 

Third, should helping people return to work quickly, especially for women, older workers and the low skilled, be a priority to limit earnings losses and skill depreciation after displacement? The finding, in this report, that earnings losses are almost entirely due to periods of non-employment rather than lower wages appears to support this view, except perhaps for the minority of workers requiring retraining. 

Finally, does knowing in advance about displacement make a difference in outcomes relative to not knowing? This issue is not explored in this report but should be the object of future analysis, notably by looking at countries – such as the United States, with its WARN Act (Worker Adjustment and Retraining Notification Act) – which require advance notification to workers affected by economic dismissals.