Logo StatCan COVID-19: Data to Insights for a Better Canada COVID-19 and job displacement: Thinking about the longer term

by Ping Ching Winnie Chan, René Morissette and Hanqing Qiu

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It is too early to know how many Canadian workers will lose their job, i.e. will be permanently laid-off, as a result of the COVID-19 pandemicNote  and what will happen to them financially after job loss. Yet a number of stylized facts emerge from the past. While these facts do not necessarily allow accurate predictions of the impact of the pandemic on job displacement, they provide a long-term perspective from which forthcoming labour market developments can be assessed. The goal of this article is to highlight these facts.

What we know so far

On average, 12.4% of Canadian paid workers aged 15 to 64 have been laid-off on a monthly basis since February 2020 (Table 1). In contrast, average monthly layoff rates during the first two months following previous labour market downturns varied between 2.5% and 3.5%.

During the last three recessions (1981-1982, 1990-1992 and 2008-2009), young workers, less educated workers, and recently hired workers were more likely to be laid-off—temporarily or permanently—than other employees (Chan, Morissette and Frenette, 2011). This is still the case so far: layoff rates since February 2020 have been higher among the aforementioned groups than among other groups of workers (Table 1).

During the last three recessions, roughly 45% of all laid-off workers were permanently laid-off (Table 1). The remainder were involved in temporary layoffs.  But these temporarily laid-off workers were not insulated from subsequent job loss: about 15% of them lost their job year the following year.

The degree to which the COVID-19 pandemic will result in permanent layoffs, i.e. job losses, is crucial to understanding how it might affect Canadian workers in the longer term. The reason is simple: job loss reduces the earnings of many displaced workers not only in the short term, but also in the longer term (Jacobson, Lalonde and Sullivan, 1993; Morissette, Zhang and Frenette, 2007; Morissette, Qiu and Chan, 2013).  From the late 1970s to the early 2010s, at least one in five permanently laid-off workers saw their real earnings decline by at least 25% even five years after job loss (Chart 1).

Although Employment Insurance benefits offset part of the earnings losses, these benefits are usually exhausted after one year. As a result, five years after job loss, the earnings losses of displaced workers can be mitigated only by the progressivity of the tax and transfer system and, for some of those who are married or in a common-law relationship, by an increase in the annual hours worked by their spouse (Stephens, 2002).

What we do not know

How many Canadian workers will end up losing their job as a result of the COVID-19 pandemic and how these workers will fare after job loss remains unknown. The degree to which the pandemic will adversely affect Canadian workers in the longer term depends on several interrelated factors, such as the degree to which it will:

  • affect consumption expenditures, as households try to improve their balance sheets;
  • reduce exports, as Canada’s trading partners work towards re-opening their economies;
  • stifle investment, as firms face uncertainty about the speed of the recovery and the possibility of subsequent lockdowns;
  • reduce firm entry and increase firm closures (e.g. conventional retail trade stores);
  • lead firms to automate certain tasks through the use of robots and computer algorithms;
  • prompt firms to expand their telework and online sales capacity, adopt shiftwork and modify the work space to protect workers against subsequent waves of the virus;
  • affect employment by generating new business costs related to the implementation of sanitary and physical distancing measures in the workplace;
  • reduce world oil prices and employment in the energy sector;
  • induce displaced workers to retire early or to upgrade their skills and move to dynamic regions, as the pandemic subsides.

Table 1
Selected statistics --- current and previous labour market downturns
Table summary
This table displays the results of Selected statistics --- current and previous labour market downturns. The information is grouped by Labour market downturn (appearing as row headers), Average monthly layoff rates, calculated using percent units of measure (appearing as column headers).
Labour market downturn Average monthly layoff rates
1981 to 1982 1990 to 1992 2008 to 2009 February-March and March-April 2020
percent
Overall 3.5 3.4 2.5 12.4
Men 3.9 4.1 3.3 12.2
Women 2.9 2.5 1.8 12.6
Age group
15 to 24 5.2 4.8 4.1 25.1
25 to 44 2.9 3.1 2.1 10.7
45 to 64 2.8 2.9 2.3 9.9
Educational attainment
Below Bachelor's degree 3.8 3.8 3.0 15.1
Bachelor's degree or higher 1.2 0.8 1.1 7.2
Tenure with employer
Less than 2 years 6.2 6.2 4.3 17.7
2 to 5 years 2.5 2.2 2.0 13.2
More than 5 years 1.3 1.4 1.4 8.2
Permanently laid-off workers as a percentage of all laid-off workers 46.2 46.4 44.6 Note ...: not applicable
Percentage of temporarily laid-off workers who lose their job the following year 15.2 16.4 15.4 Note ...: not applicable

Chart 1 Percentage of permanently laid-off workers whose real earnings 5 years after job loss are at least 25% lower than in the year prior to job loss, 1979 to 2011

Data table for Chart 1 
Data table for Chart 1
Table summary
This table displays the results of Data table for Chart 1 All industries, Men and Women, calculated using percent units of measure (appearing as column headers).
All industries
Men Women
percent
1979 41.7 37.4
1980 41.4 37.3
1981 38.8 36.7
1982 36.6 34.4
1983 27.3 31.0
1984 22.3 28.7
1985 23.3 28.2
1986 29.3 31.7
1987 33.4 31.0
1988 36.1 32.8
1989 37.4 35.6
1990 36.6 36.1
1991 33.6 36.1
1992 26.4 32.2
1993 22.3 29.6
1994 20.4 27.2
1995 19.8 24.8
1996 21.3 24.0
1997 20.9 23.7
1998 22.3 24.9
1999 22.3 27.0
2000 22.3 25.8
2001 23.2 26.1
2002 22.1 26.8
2003 20.9 25.8
2004 25.2 26.7
2005 23.8 27.0
2006 23.1 26.5
2007 22.4 26.7
2008 22.2 27.6
2009 22.7 26.8
2010 20.7 26.6
2011 22.7 26.4

References

Chan, W., R. Morissette and M. Frenette. 2011. “Workers Laid-off During the Last Three Recessions: Who Were They, and How Did They Fare?”, Statistics Canada catalogue no. 11F0019M, Analytical Studies Branch Research Paper Series. No. 337.

Jacobson, L.S., R.J. LaLonde, and D.G. Sullivan. 1993. “Earnings Losses of Displaced Workers” American Economic Review. 83(4), 685−709.

Morissette, R., X. Zhang and M. Frenette. 2007. “Earnings Losses of Displaced Workers: Canadian Evidence from a Large Administrative Database” Statistics Canada catalogue no. 11F0019M, Analytical Studies Branch Research Paper Series. No. 291.

Morissette, R., H. Qiu, and P.C.W. Chan. 2013. “The Risk and Cost of Job Loss in Canada, 1978-2008”, Canadian Journal of Economics, 46(4), 1480-1509.

Stephens, M. 2002. “Worker Displacement and the Added Worker Effect.” Journal of Labor Economics. 20, 3: 504–537.

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