Temporary Layoffs Are Trending Down

Econintersect: Fact – during the Great Recession, business did not use temporary layoffs to reduce costs.  When a worker is on temporary layoff, the employee expects a recall within six months.

This is not a new pattern.  During the recessions of 1975, 1979, and 1981 saw a huge surge in temporary layoffs.  However, in all more recent recessions, employers tended to terminate employment permanently.

This effect was documented in a Federal Reserve study by Erica L. Groshen. To quantify the declining use of temporary layoffs during recessions, Erica calculated in the next chart –  the share of the total rise in unemployment attributable to temporary layoffs in the seven recessions since 1969.

The question of the day is why this effect is occurring.  The most likely explaination is the decline of the percentage of all employees who are union members.  Collective bargaining agreements historically specify a preference for temporary over permanent layoffs, and dictate how layoffs and recalls will be conducted.

source: Federal Reserve