Displaced workers ; Job security ; Unemployment

Daniel Aaronson

Daniel G. Sullivan

English

Research Papers in Economics

ESSAYS ON ISSUES THE FEDERAL RESERVE BANK DECEMBER 1998
OF CHICAGO NUMBER 136
Chicago Fed Letter
Recent trends in job
displacement
The news media often suggest that
American workers have suffered a sig-
nificant decline in job security during
the 1990s. This perception is shared
by many policymakers, who believe
workers’ anxiety is a major reason wage
inflation in the mid-1990s remained
modest in the face of historically low
levels of unemployment.
A large body of research demonstrates
that job loss is costly, at least for workers
who have attained significant tenure.
For example, Jacobson, LaLonde, and
Sullivan (1993) found that even six
years after job loss, earnings losses
among a sample of Pennsylvania work-
ers displaced in the early 1980s were
still equal to about 25% of their pre-
displacement earnings levels.1 What
has been less clear to researchers is
whether job loss has become any more
common in recent years and, thus,
whether workers’ fear of displacement
should have increased.
In a recent Economic Perspectives article,
we used the U.S. Bureau of Labor
Statistics’ (BLS) Displaced Worker Survey
(DWS) data to provide new estimates
of rates of job loss for high seniority
workers through 1995.2 We found that
despite falling unemployment rates in
the first half of the 1990s, job loss for
workers with at least five years of tenure
increased. The increase was especially
dramatic in job loss due to “shift or
position abolished,” which possibly
comes closest to capturing the notion
of “downsizing.” We also found that
displacement had become somewhat
more “democratic.” Previously, high-
seniority workers who were highly edu-
cated, were in white-collar jobs, or were
employed in the service-producing
industries were relatively immune to
displacement. During the early 1990s,
however, displacement rates for these
groups rose particularly fast, while
those for some groups who had high
rates of displacement in the 1980s rose
less or even fell. As a result, many more
workers may have considered them-
selves at risk for job loss. Such find-
ings added credibility to the idea that
worker insecurity was holding down
wage increases.
This Chicago Fed Letter updates our job
loss estimates using recently released
DWS data for 1995 to 1997. We find a
general decline in high-tenure dis-
placement rates over the last few years
that is consistent with the significant
declines in unemployment over this
period. We also find further democrati-
zation of job loss, as longstanding gaps
in displacement rates by education,
occupation, and industry decline or
disappear by 1997.
Displacement rates for
high-seniority workers
Our measures of displacement are
based primarily on the DWS. These
surveys were conducted as supplements
to the Current Population Survey (CPS)
in January of even years from 1984 to
1992 and in February 1994, 1996, and
1998. For the purposes of the survey,
displacement is defined as involuntary
job loss unrelated to workers’ perfor-
mance. Thus, displacement excludes
cases in which workers quit or are dis-
charged for poor performance. The
surveys are retrospective, asking indi-
viduals whether they have experienced
job loss any time over the last five years
in the case of the 1984 to 1992 surveys
and over the last three years in the case
of the 1994 to 1998 surveys. Thus, our
earliest information on displacement
is for 1979 and our latest is for 1997.
For workers who report that they were
displaced in the relevant time period,
the DWS asks for the specific reason for
their displacement. The possible re-
sponses are plant or company closed or
moved, insufficient work, position or
shift abolished, seasonal job completed,
self-operated business failed, or some
other reason. This list of reasons is less
than ideal. For example, insufficient
work might be the reason one of the
other events occurred. Moreover, posi-
tion or shift abolished is intended to
cover downsizing, but the reference to
shifts may confuse those in nine-to-five
environments. Finally, perhaps because
of some of the ambiguities of the pre-
ceding categories, “other” is an increas-
ingly common response, accounting for
a large fraction of the total growth of
displacement of high-seniority workers
during the 1990s.
In our previous work we focused on
all displaced workers, regardless of
reason for displacement. However,
evidence now indicates that a sizable
fraction of the “other” category were not
actually displaced. In a BLS debriefing
of respondents to the February 1996
survey, only 20% to 30% of those who
had initially reported “other” reasons
for their job loss gave answers consistent
with being displaced.3 It is not clear
how to construct a displacement series
using the “other” category that is con-
sistent over time. Therefore, in this
article, we focus on the first three dis-
placement categories: plant or company
closed or moved, insufficient work, and
position or shift abolished.
The DWS gives estimates of the number
of workers with five or more years of
tenure who are displaced in a particular
year. To calculate a displacement rate
we need to divide this estimate of the
number of high-tenure displaced
workers by the number of high-tenure
workers who were at risk in that year.
We calculated the latter figure as the
product of total employment and the
fraction of employment accounted for
by workers with five or more years of
tenure. Our estimated displacement
rate is rt
5= dt
5/ntft
5, where dt
5 is the num-
ber of workers with five or more years
of tenure displaced in year t, nt is total1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
0.5
1.0
1.5
1. Displacement rates, workers with five years tenure
percent
A. Overall and standard reasons B. Standard reason
percent
Plant or company
closed or moved
Position or
shift abolished
Standard rate
(standard reasons)
Overall rate
(all reasons)
Note: Shaded areas indicate recessions.
Source: Authors’ caluculations based on data from U.S. Department of Labor,
Bureau of Labor Statistics, 1988, Displaced Worker Survey, 1984–98.
Slack work
2. Displacement rates, workers with five or more years tenure, by category
percent
A. Men and women B. White and black workers
percent
Men
E. Goods-producing and service-producing
percent
D.  Blue-collar and white-collar
percent
C. College graduates and nongraduates
percent
Women
Black
White
Nongraduates
Graduates
Blue-collar
White-collar
Goods-
producing
Service-
producing
Note: Shaded areas indicate recessions.
Source: Authors’ caluculations based on data from U.S. Department of Labor,
Bureau of Labor Statistics, 1998, Displaced Worker Survey, 1984–98.
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
5.0
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
5.0
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
5.0
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
5.0
1979 ’82 ’85 ’88 ’91 ’94 ’97
0.0
1.0
2.0
3.0
4.0
5.0
employment, and ft
5 is the fraction of
employment accounted for by workers
with five or more years of tenure.
As noted above, we derive estimates
of dt
5 from the DWS. To estimate nt,
we use the CPS outgoing rotation files.
The outgoing rotations are those CPS
members who are in their fourth and
eight month of their eight-month
participation, about 25% in a given
month. Pooling together the outgoing
rotations for all 12 months of the year
yields quite precise estimates of em-
ployment levels. To estimate ft
5, we use
CPS tenure supplements conducted in
1981, 1983, 1987, 1991, 1996, and 1998.
To compute displacement rates for 1979
and 1980, we use the value of ft
5 from
1981. For years in which there was no
supplement, we interpolate linearly
from the preceding and succeeding
tenure supplements. Because the frac-
tion of workers with five years of tenure
changes very slowly relative to the
number of displaced workers, this in-
terpolation should be quite accurate.
Trends in displacement
Overall displacement rates are plotted
in panel A of figure 1. The blue line
displays the rate of displacement due
to the standard three responses while
the black line adds respondents who
reported “other” reasons. Comparing
the two lines, it is clear that a large part
of the significant mid-1990s increase
is due to an increase in the number of
workers giving “other” as their reason
for displacement. The overall, standard-
reason displacement rate for workers
with five years of tenure rose during the
recession of the early 1980s from 1.2%
in 1979 to 2.2% in 1982. It then de-
clined during the economic expansion
that followed to a low of about 1.3% in
1988. In the early 1990s, it rose rather
dramatically. It was not surprising that
the rate should have risen during the
recession of 1990–91, but at 2.2%, the
rate recorded in 1991 was comparable
to that in 1982, even though by most
measures the 1982 recession was more
severe. Since 1993, the displacement
rate has fallen, reaching 1.5% in 1997
with much of the decline occurring
after 1995. By comparison, the black line
that includes the “other” response shows
little decline in the rate of displace-
ment, especially through 1995.
Panel B of figure 1 displays displace-
ment rates for the three standard rea-
sons. The most notable feature is the
sharp increase from 1990 to 1995 due
to shifts or positions abolished. This
rate, which comes the closest to captur-
ing downsizing, was between 0.2% and
0.3% from 1979 to 1989, but rose to
roughly 0.8% in 1995 before sliding
back to 0.5% in 1997. Even with the
'97 '97
'97 '97 '97 '97
'97Michael H. Moskow, President; William C. Hunter,
Senior Vice President and Director of Research;  Douglas
Evanoff, Vice President, financial studies; Charles
Evans, Vice President, macroeconomic policy research;
Daniel Sullivan, Vice President, microeconomic policy
research;  William Testa, Vice President, regional
programs; Vance Lancaster, Administrative Officer;
Helen O’D. Koshy, Editor.
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recent decline, the rate remains twice
as high as in the 1980s.
Figure 2 shows standard-reason
displacement rates for several major
groups. Panel A displays the rates
for men and women. For most of the
period covered by our data, high-
tenure women were less subject to dis-
placement than men, with the typical
gap in rates being five- or six-tenths of
a percentage point. In the last five
years, however, the gender gap has
disappeared. Since 1995, the displace-
ment rate for women even exceeds
that of men by about one-tenth of a
percentage point. Thus, by our mea-
sure, women have suffered a larger
decline in job security than men.
Panel B of figure 2 displays displace-
ment rates for whites and blacks. At
least in our samples of high-tenure
workers, racial differences are relative-
ly minor. Still, there have been some
changes over time. Early in the period,
especially during the recession of the
early 1980s, blacks had noticeably
higher displacement rates. However,
in the mid-1990s, it was whites who
had higher rates of displacement. By
1997, a sharp decline in the displace-
ment rate of whites combined with
an increase in the rate for blacks had
caused yet another switch.
Panel C shows the breakdown between
those with and without a college de-
gree. Although displacement rates for
college graduates remain lower than
those for nongraduates, the gap has
narrowed considerably in the 1990s.
Until 1990, displacement rates for
college graduates never exceeded
1.0% and the gap between them and
non-college graduates was often a
percentage point or more. In the early
1990s, displacement rates for college
graduates rose sharply, leveling off at
roughly 1.5% for much of the 1990s.
Conversely, the rate of displacement
for non-college graduates has declined
steadily from 2.3% in 1991 to 1.5% in
1997. Thus, the gap in displacement
rates between those with and without
a college degree has narrowed con-
siderably over the last ten years.
Panel D shows displacement rates for
blue-collar and white-collar workers.
Similar to the education gaps reported
in panel C, what once had been a
sizable difference between high-
tenure blue-collar and white-collar
workers had disappeared by 1997.
Rates of job loss among white-collar
workers steadily increased from the
late 1970s to the mid-1990s with the
biggest gains occurring during the
early 1990s. Over the last seven years,
displacement rates have remained
relatively flat for these workers despite
sharp declines in the unemployment
rate. By contrast, blue-collar workers
have seen their rate of displacement
decline steadily from over 3.0% in
1991 to 1.5% in 1997.
Finally, panel E shows displacement
rates for workers in goods-producing
and service-producing industries.
Again, a large gap in rates in the 1980s
narrowed to lower levels by 1997. Dis-
placement rates for those in goods-
producing industries are significantly
lower than in 1982, but rates for those
in the service-producing industries
are about 40% greater. Even so, work-
ers in goods-producing industries re-
main more at risk for displacement.
More dramatic changes can be identi-
fied for certain industries. For instance,
displacement rates for workers in the
finance, insurance, and real estate
industries rose from only about 0.5%
in the early 1980s to 3.0% in 1997.
Conclusion
Our results point to a decline in high-
tenure displacement rates since 1995.
If worker insecurity, as has often been
hypothesized, depresses wage growth,
wage gains should have increased in
response to the lower displacement
rates after 1995. Compensation mea-
sures such as the BLS’s Employment
Cost Index do show an acceleration in
this period. Whether the magnitude
of this acceleration is consistent with
the observed decreases in displace-
ment and unemployment is, however,
beyond the scope of the present article.
We also found that those who were
most prone to job loss in the 1980s,
such as those without a college educa-
tion, in blue-collar jobs, or in goods-
producing industries, experienced
the largest declines in job displace-
ment. Displacement for groups that
might once have considered them-
selves immune to job loss declined
substantially less. As a result, previously
large gaps in displacement by educa-
tion, occupation, and industry had vir-
tually disappeared by 1997.
—Daniel Aaronson
Economist
—Daniel G. Sullivan
Vice president and economic advisor
1Louis Jacobson, Robert LaLonde, and
Daniel Sullivan, 1993, “Earnings losses of
high-seniority displaced workers,” Eco-
nomic Perspectives, Federal Reserve Bank
of Chicago, Vol. 17, No. 6, November/
December, pp. 2–20.
2For greater detail on the data issues and
computations, see Daniel Aaronson and
Daniel Sullivan, 1998, “The decline of
job security in the 1990s: Displacement,
anxiety, and their effect on wage growth,”
Economic Perspectives, Federal Reserve
Bank of Chicago, Vol. 22, No. 1, First
Quarter, pp. 17–43.
3Katherine G. Abraham, 1997,“Comment
on ‘The changing face of job loss in the
United States, 1981–1995’,” Brookings Papers
on Economic Activity: Microeconomics, pp.
135–141. For details on the debriefing, see
James L. Esposito and Sylvia Fisher, 1998,
“A summary of quality-assessment re-
search conducted on the 1996 displaced-
worker/job-tenure/occupational-mobility
supplement,” U.S. Bureau of Labor Statis-
tics, statistical note, No. 43.1995 1996 1997 1998
40.0
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Sources: The Chicago Fed Midwest Manufactur-
ing Index (CFMMI) is a composite index of 16
industries, based on monthly hours worked and
kilowatt hours. IP represents the Federal Re-
serve Board’s Industrial Production Index for
the U.S. manufacturing sector. Autos and light
trucks are measured in annualized units, using
seasonal adjustments developed by the Board.
The purchasing managers’ survey data for the
Midwest are weighted averages of the seasonal-
ly adjusted production components from the
Chicago, Detroit, and Milwaukee Purchasing
Managers’ Association surveys, with assistance
from Bishop Associates, Comerica, and the
University of Wisconsin–Milwaukee.
Purchasing managers’ surveys (production index)
Purchasing managers’ surveys:
net % reporting production growth
Oct. Month  ago Year ago
MW 57.3 67.8 62.6
U.S. 52.6 53.4 59.6
Motor vehicle production
(millions, seasonally adj. annual rate)
Sept. Month  ago Year ago
Cars 6.5 6.3 6.1
Light trucks 5.9 6.6 6.1
Midwest
U.S.
Manufacturing output indexes
(1992=100)
Aug. Month  ago Year ago
CFMMI 125.9 121.7 123.2
IP 132.0 129.5 127.9
The Midwest purchasing managers’ composite index (a weighted average of
the Chicago, Detroit, and Milwaukee surveys) for production decreased from
67.8% in September to 57.3% in October.  Purchasing managers’ indexes de-
creased in Chicago, Detroit, and Milwaukee. The national purchasing managers’
survey for production declined from 53.4% in September to 52.6% in October.
The CFMMI rose 3.5% from July to August, to a level of 125.9; revised data show
the index fell 2.1% in July. The Federal Reserve Board’s IP rose 2.0% in August
after dropping 0.4% in July. Light truck production decreased to 5.9 million
units in September from 6.6 million units in August. Car production increased
to 6.5 million units from 6.3 million units during this time.
Tracking Midwest manufacturing activity

Recent trends in job displacement

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Recent trends in job displacement

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Research Papers in Economics