Executive summary
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Prior to losing their jobs, workers may have displayed a stable attachment to the labour market as they: (a) stayed with the same employer for several years (high-seniority workers); (b) did not experience layoffs while making transitions across employers (low-seniority workers); or (c) avoided long-lasting spells of non-employment while experiencing some layoffs (previously laid-off workers). In all cases, some workers may have lost their jobs in firm closures while others may have been laid off because of declines in firm-level demand for goods and services that did not lead to firm closures.
Among workers who exhibit stable labour market attachment prior to job loss (henceforth, "high-attachment displaced workers"), which groups experience substantial and sustained earnings losses? Are persistent earnings losses observed only among high-seniority workers, or are they observed among other groups as well? Within seniority groupings, do earnings losses increase with age or remain fairly stable across age groups? Are sustained earnings losses observed only in periods of high unemployment, or are they observed also during periods of low unemployment?
The goal of this study is to answer these questions.
Using data from Statistics Canada's Longitudinal Worker File (LWF), the study shows that 2.3 million workers aged 21 to 55 were laid off at least once during the period from 1990 to 1993 and that 2 million workers in this age group were laid off at least once during the period from 2000 to 2003. Of these laid-off workers, close to 50% (or about 1 million workers) had stable labour market attachment prior to job loss, defined as six or more consecutive years of positive wages and salaries prior to being laid off.
In both periods, employees laid off in firm closures represented only a minority of high-attachment displaced workers. Of all high-attachment workers laid off between 1990 and 1993, only 14% were laid off in firm closures, while the corresponding proportion for the period from 2000 to 2003 was 11%.
Likewise, high-seniority workers (employees who remained with the same firm for at least six years prior to job loss) accounted for a relatively small share of high-attachment displaced workers. Of all high-attachment workers displaced between 1990 and 1993 who had positive earnings in all subsequent years, 18% had high seniority. Between 2000 and 2003, the corresponding proportion was 20%.
These numbers indicate that analyses focusing solely on earnings losses of high-seniority workers and of workers laid off in firm closures will exclude at least two-thirds of high-attachment workers displaced in any given period.
The study shows that substantial and sustained earnings losses are not limited to high-seniority workers or to periods with relatively high unemployment rates. For instance, five years after job loss, low-seniority men in all age groups experienced earnings losses of about 20% during the 1990s, and low-seniority men aged 36 to 55 experienced earnings losses that varied between 10% and 21% during the 2000s, a period associated with relatively low unemployment rates.
Substantial and persistent earnings losses are not limited to older workers either, at least during periods of slack labour markets. Whatever employment trajectory prior to job loss is considered, both young workers (aged 21 to 35) and their older counterparts experienced significant earnings losses during the 1990s. For the 2000s, the magnitude of the earnings losses incurred by young workers is sensitive to functional form; thus, a greater degree of uncertainty surrounds that issue.
The degree to which long-term earnings losses increase with age depends on individuals' employment trajectories prior to job loss. For instance, high-seniority men aged 46 to 55 displayed larger earnings losses than their counterparts aged 21 to 35 in both reference periods. However, this age-related difference in earnings losses is much smaller or is inexistent among low-seniority men and previously laid-off men.
The earnings losses experienced by previously laid-off workers were unambiguously smaller during the 2000s than during the 1990s; this was evident when either log earnings or earnings levels were considered. In contrast, the comparison of earnings losses experienced by low- and high-seniority workers in the 1990s and 2000s is sensitive to the functional form that is used. Earnings losses of these groups were smaller in the 2000s than the 1990s when measured in terms of log earnings, but were not much different when measured in terms of earnings levels. Hence, the data do not provide clear evidence of whether low- and high-seniority displaced workers experience smaller earnings losses during periods of tight, rather than slack, labour market conditions.
The finding that post-displacement long-term earnings losses are smaller during periods of low, rather than high, unemployment rates for workers who had been previously laid off is important. Since this group represents roughly half the population of high-attachment displaced workers, this finding implies that better labour market conditions mitigate long-term earnings losses for a significant segment of displaced workers.
However, the study also shows that both high- and low-seniority male workers aged 36 to 55 experienced long-term earnings losses of at least 10% even in the relatively tight labour market of the 2000s. Thus, while better labour market conditions are good news for many displaced workers, they do not eliminate the adverse earnings impact of job displacement for a significant number of others.
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