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Murat Tasci |

Research Economist

Murat Tasci

Murat Tasci is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in macroeconomics and labor economics. His current work focuses on business cycles and labor markets, labor market policies, and search frictions.

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11.07.12

Economic Trends

Displaced Workers and the Great Recession

Murat Tasci

The Great Recession lasted six quarters, from December 2007 through June 2009, and as we all know, it took a large toll on the labor market. During the course of the recession, about 7.5 million jobs were lost in the nonfarm business sector. Job losses did not end until February 2010, by which point total jobs lost stood at about 8.7 million. More than two years since then and after three years of growth in the aggregate economy, employment recovered by 4.5 million, still short of the sharp decline we experienced. These numbers, however, do not tell us the whole story about those workers who suffered the job losses. How many of them eventually found jobs, and if they did, at what wage level and in which industries?

Fortunately, we have some information about the answers to these questions from the Displaced Workers Survey (DWS), a biennial supplement of the monthly Current Population Survey (CPS), which provides us with the official unemployment rate every month. Both surveys are sponsored by Bureau of Labor Statistics (BLS). The BLS defines displaced workers as workers 20 years of age and older who lost or left jobs because their plant or company closed down or moved, there was insufficient work for them to do, or their position or shift was abolished. The BLS recently reported the summary statistics from the last DWS, which covers information about workers who were displaced between January 2009 and December 2011, and their labor market outcomes as of January 2012. Along with this 2012 release, two preceding reports, in 2010 and 2008, provide us with a complete picture of the job-loss experience of the displaced workers. One can think of the 2008 release of the DWS (which covers the period from January 2005 to December 2007) as representing “normal” times, and the 2010 release (which covers January 2007 to December 2009) as summarizing the recessionary period. One additional advantage of the DWS survey is that we can track tenured workers, those with at least three years of experience at their jobs before they were displaced. Arguably, these are the workers who will pay a higher price in terms of human capital loss than workers with very short tenure.

With this classification in mind, the effects of the recession in terms of job loss are very obvious in these data. There were only 3.6 million displaced workers in the 2008 survey, whereas the number jumped to 6.9 million in the 2010 survey. Even the latter half of the recession and the early part of the recovery, summarized in the 2012 survey, do not seem to be immune to job losses; during this period about 6.1 million workers were displaced from January 2009 through December 2011. Moreover, those who were displaced between January 2007 and December 2009 were the least likely of all the workers displaced during the three survey periods to be employed in the following January, 48.8 percent. In contrast, as of January 2008 two-thirds (67 percent) of the workers who were displaced in the prior three years were already employed. The odds improved somewhat in the 2012 survey, but at 56 percent, the reemployment probability was still lower than the level it was in 2008 survey. Note that most of these tenured displaced workers did not drop out of the labor force, even in 2010, due to their strong labor force attachment. Instead, they faced a higher likelihood of staying unemployed, 36 percent, double the 2008 level.

The nature of the job losses change across the three surveys, highlighting the effects of the business cycle. For instance, the bulk of displaced workers, 45 percent, reported plant shutdowns or relocations as the reason for displacement in 2008, whereas this reason was given by barely one-third of the pool in the next two cycles. It seems that the recession put the lack of demand for firms’ products and services at the top of the reasons for displacement, as the fraction of those citing insufficient work topped 43 percent in 2010 and stayed at 39 percent in 2012.

The cost of displacement can be quite large. Consider the experiences of displaced workers from the 2010 release, for instance. Those who were tenured had less than a 50 percent chance of finding a job by January of that year, but those who did find a job were more than likely (by 55 percent) to end up with a job that paid less than their previous wage. An incredible 36 percent of those who found jobs suffered at least a 20 percent wage loss. Prior to the recession, not only were the odds of being reemployed higher (67 percent), but the odds of being paid more relative to the predisplacement wage were much higher too, 55 percent, as opposed to 45 percent in 2010 and 46 percent in 2012. Unfortunately, a significant fraction of the reemployed displaced workers, 33 percent, still reported having suffered at least a 20 percent wage loss in the 2012 survey.

Workers from every industry took a larger hit in terms of significant wage losses (more than 20 percent) in the 2010 survey relative to the prerecession survey in 2008. Some sectors, such as professional and business services and retail trade, took larger hits with the recession. However, they recovered a bit in the 2012 survey, whereas the depth of the wage loss worsened in construction and government. Nevertheless, workers who were displaced from manufacturing and construction industries are among those with the worst wage outcomes according to the 2012 survey, with slightly more than 30 percent suffering at least a 20 percent wage loss.

Reemployment rates are somewhat more uniformly distributed across industries in each survey year. For instance, with the exceptions of retail trade and construction, displaced workers from almost every industry had the same reemployment probability of more or less 55 percent in the 2012 survey. Displaced workers from the finance, insurance, and real estate and government sectors all had reemployment probabilities that are still below their prerecession levels. It is conceivable to think that, if those workers are looking for jobs in the same sectors they worked in before, the financial crisis and the resulting pressures on state and local government budgets are reducing their reemployment rates even two years after the recession.