Unemployment Through Layoffs and Offshore Outsourcing

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Unemployment can come about in a number of ways, but the form of unemployment that
policymakers have shown they are most concerned about involves workers who have
involuntarily lost jobs through no fault of their own. Unemployment through layoffs ebbs and
flows with the business cycle, but involuntary job loss is ever-present because firms displace
workers for reasons other than temporarily weak demand. Employers also layoff employees for
reasons specific to the firm or the industry in which the firm lies (e.g., corporate restructuring and
seasonality).
One means of restructuring work—namely, outsourcing—has spread from employers contracting
out functions to other affiliated or nonaffiliated employers in the United States, to employers
contracting out activities to affiliated or nonaffiliated employers located outside U.S. borders. The
latter business practice is referred to as offshore outsourcing or offshoring.
Offshoring is driving much of the current interest in job loss and economic insecurity more
generally. It also is driving the demand for statistics on the number of employees who have lost
their jobs because firms decided to move work abroad as a result of an internal corporate
reorganization or financial difficulties for example. No database exists that provides anything
approximating a complete count of workers separated from payrolls because their company
relocated their functions beyond U.S. borders.
Starting in mid-decade, the U.S. Bureau of Labor Statistics (BLS) Mass Layoff Statistics program
began to query firms in the private nonfarm sector that call long-lasting large-scale layoffs about
whether these events involve the offshoring of work. In addition to excluding layoffs at small
firms and in the public sector, the series does not cover layoffs in which fewer than 50 employees
are terminated. It thus likely to understate layoffs associated with offshore outsourcing generally
and with those involving white-collar workers in the service sector particularly (e.g., accounting
clerks at financial services firms, radiologists at medical services providers).
This report briefly reviews the various databases that provide information on layoffs. It then more
closely examines results from the above-described BLS program. In brief, the BLS series shows
that outsourcing—particularly of work moving offshore—is uncommon in extended mass layoffs
and accounts for fairly few separated workers. Relocation of work most often occurs within the
United States and within the same company. Most workers separated in extended mass layoff
events involving domestic or offshore outsourcing had been employed by manufacturers.
Employer restructuring (bankruptcy, business ownership change, financial difficulty, and
reorganization within a company) typically accounts for a majority of these layoffs as well. In
extended mass layoffs associated with the movement of work offshore, jobs most often are shifted
to Mexico and China.

Introduc tion ..................................................................................................................................... 1
Restructuring Work for Competitive Purposes................................................................................1
Sources of Information on Layoffs..................................................................................................2
Layoff s ...................................................................................................................................... 3
Current Population Survey (CPS).......................................................................................3
Job Openings and Labor Turnover Survey (JOLTS)...........................................................3
Mass Layoffs.............................................................................................................................3
Employer Announcements of Large Staff Cuts...................................................................3
Mass Layoff Statistics (MLS) Program..............................................................................4
Table 1. Short- and Long-Term Mass Layoff Activity....................................................................5
Author Contact Information............................................................................................................6

Unemployment can develop in a number of ways, such as an individual (re)entering the labor
force and being unable to immediately find a job or a person quitting a job at one firm before
having obtained a job at another firm. The form of unemployment that policymakers have shown
they are most concerned about occurs when businesses layoff employees. Congress has
demonstrated its desire to help workers who have involuntarily lost their jobs through no fault of
their own, and are presumed to face an indeterminate spell of unemployment, by its provision of
income support under the Unemployment Insurance (UI) program and the Trade Adjustment
Assistance (TAA) program, training for dislocated workers under the Workforce Investment Act
(WIA) and TAA, and advance notice of mass layoffs and plant closings under the Worker
Adjustment and Retraining Notification Act (WARN).
Although involuntary “no-fault” displacement from jobs is always with us, this form of
unemployment increases when the economy is sluggish and decreases when the economy is
robust. In other words, there is a cyclical component to layoff activity. However, firms lay off
workers not only due to temporarily weak demand throughout the economy, but also due to
factors specific to them or their industry (e.g., company reorganization and seasonal work). The
current interest in involuntary job loss springs from the practice of U.S. firms sending work to
firms located in other countries—commonly known as offshore outsourcing or offshoring.
This report focuses on unemployment through layoffs. It first briefly provides a context for the
offshore outsourcing phenomenon and its relationship to gross and net employment change. The
report next examines the available sources of data on layoffs to determine whether they provide
information on the reasons that underlie those events. It then analyzes the trend in, severity of,
and explanations of extended mass layoffs. The report concludes with a discussion of those
extended mass layoff events that involve movement-of-work actions (to other U.S. locations of
the company that has called the layoff, to other U.S. firms, to foreign-based affiliates of the U.S.
company, and/or to foreign businesses).

U.S. firms have, in the past few decades, been restructuring their operations to be more
competitive in the global marketplace by:
• downsizing their workforces;
• outsourcing functions, ranging from performing janitorial services to developing
computer software, to firms located within and outside the United States; and
• utilizing contingent workers, such as independent contractors and temporary
workers.
The term “downsizing” was coined during the 1980s to describe a practice among, typically, very
large “old economy” manufacturers to become more efficient international competitors by each
laying off thousands of employees—sometimes in multiple rounds of mass layoffs—and closing
entire facilities. Since then, downsizing has spread to “new economy” manufacturers (e.g.,
computer hardware producers) and to companies in the service sector (e.g., telecommunications
firms and financial enterprises).

Similarly, the practice of employers contracting out activities has spread from relocating work to
other companies in the United States, to moving work to firms located outside the United States.
It has been suggested that employers have been able to achieve efficiencies through offshore
outsourcing due to improved internet, telephone, and transportation links with countries (e.g.,
India) whose educational systems have expanded the worldwide supply of well-educated workers ¹
who possess information technology (IT) and other white-collar skill sets.
As a result, the kind of U.S. workers susceptible to involuntary job loss has changed. Whereas
displacement once occurred primarily among traditionally layoff-prone blue-collar factory
workers, the risk of job loss has increased among traditionally stable white-collar workers.
Consequently, concern about job security has spread from blue-collar to white-collar workers,
who make up the majority of all employees in the labor market.
By definition, restructuring achieved through downsizing produces a net loss of jobs at firms.
This is not necessarily the case at companies that utilize contingent workers or outsource work. If
these employers are laying off workers, they may be hiring a greater, equivalent, or lesser number
of people.
Overlaid on these ongoing changes in how firms organize their operations is the business cycle.
During the long economic expansion that characterized much of the 1990s, for example, net job
growth and layoffs occurred simultaneously according to data from the U.S. Bureau of Labor
Statistics (BLS). More than 20 million private sector nonfarm jobs were added between 1991 and
2000. Nonetheless, in 2000, employers permanently displaced almost two million workers from
their private sector jobs through mass layoffs.
Job losses usually have not persistently exceeded job gains at the national level, thereby yielding
a net decrease in employment, except during recessions. However, after employment contracted
by almost 300,000 jobs in the private nonfarm sector during the 2001 recession, 1.9 million more ²
jobs were lost than gained in 2002. In contrast, although remaining high by historical standards,
the number of workers who permanently lost their private sector jobs through mass layoffs
dropped by nearly 300,000 in 2002. Despite employment starting to grow during 2003, signaling
the end of the “jobless recovery,” the net change in employment for the year was negative (some
400,000 private nonfarm jobs). In contrast, the number of workers permanently displaced from
their private sector jobs as part of mass layoffs continued to fall in 2003. Not until 2004 did the
private nonfarm economy record a net increase in employment of almost 1.5 million jobs, while
the number of employees separated from payrolls through mass layoffs continued to trend
downward.

Data series measure layoffs in different ways. One, for example, tracks at the national level the
number of persons who are unemployed by broad reason for their joblessness. Another focuses on
the number of workers displaced in lengthy (permanent) mass layoffs, which are considered to be

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more difficult to recover from for the affected workers and geographic areas. Only one tries to
determine whether layoffs are associated with the relocation of work (within the same firm but to
its other U.S. locations, to other U.S. firms, to foreign-based affiliates of the U.S. company,
and/or to foreign businesses).
The CPS is a monthly survey of households from which the unemployment rate is derived. It
includes a question on reason for unemployment. Unemployed persons are categorized as job
losers if they report they are on a temporary layoff (meaning that their employer has given them a
date to return to work or that they expect to return to their jobs within six months) or they have
permanently, involuntarily lost their jobs. Individuals are not asked why they were laid off.
The other reasons for unemployment are having left a job voluntarily, having completed a
temporary job, and newly entering or reentering the labor force. In all cases, the individual must
currently be looking for a job to be classified as unemployed. Thus, if job losers become
discouraged about their reemployment prospects and stop searching for work, their reason for
being jobless would not be tallied.
BLS initiated JOLTS in December 2000. It collects data on job openings and labor turnover from
a sample of establishments subject to state UI laws as well as federal agencies subject to the
Unemployment Compensation for Federal Employees program. More specifically, JOLTS
provides monthly data on total employment, job openings, hires, quits, layoffs and discharges,
and other separations by month with a two-month lag.
Of interest in terms of this report are the figures on separations due to layoffs and discharges.
These involuntary terminations are defined in JOLTS to include layoffs with no intent on the
employer’s part to rehire their former employees and layoffs that have lasted or that the employer
expects to last more than seven days; discharges that arise from downsizing, mergers, closings,
and firings or other discharges for cause; and terminations of permanent, short-term, or seasonal
employees. Employers are not asked about the reasons underlying the layoffs and discharges.
A more frequently and regularly reported source of information on substantial staff cutbacks has
been announcements of impending actions that are issued by individual firms. However, several
drawbacks exist in using the timely layoff announcements to gauge the actual circumstances of
workers, firms, and communities. Companies make announcements about their expectations, but
these may or may not come to pass as planned. Although firms sometimes include statements in
financial reports about how their restructuring plans have been implemented, there is neither
readily available nor comprehensive information on their actual outcomes. In addition, layoff
announcements commonly are interpreted as calling for involuntary job cuts, but some employees

accept early retirement or voluntary severance offers while others accept transfers to jobs within
their own firms or to reorganized entities. Moreover, the announcement of a layoff in a given
month does not mean that affected workers are displaced immediately or terminated as a group.
Instead, a layoff might involve varying numbers of people being released at different intervals
over many months or years. This scenario would have considerably less of an adverse impact on a
community’s labor market, which could more easily absorb the displaced workers who had not
found new jobs before their termination.
The impetus for issuance of these announcements was passage of the Worker Adjustment and
Retraining Notification Act (WARN, P.L. 100-379), which went into effect in 1989. The act
requires firms with 100 or more employees to provide notice to employees or their union
representatives and to local/state government officials 60 days before initiating a major layoff or
closing a plant. Because smaller businesses do not have to issue these notices, some unknown ³
number of mass layoffs cannot be detected from this source.
A comprehensive database of these announcements does not exist because there is no legal
requirement that the notices be filed with a single entity. Some of these announcements are
reported by the media or other information-gathering organizations. These reports might include
only the most newsworthy layoff events (e.g., those involving the nation’s or a geographic area’s
largest employers). Moreover, these reports might not mention the hiring expectations of some of
the same firms that issue layoff announcements. There is likely to be considerable variability in
what, if any, information is provided about the reasons for the anticipated layoffs.
Under the Job Training Partnership Act of 1982 (JTPA), the U.S. Department of Labor (DOL)
was charged with obtaining information about mass layoffs and plant closings. The Employment
and Training Administration (ETA) used JTPA funds to have the BLS develop the Mass Layoff
Statistics (MLS) program. The program was terminated in 1992 for budgetary reasons. After ETA
gave it funds to do so in 1994, BLS resurrected the MLS program in 1995, with some
improvements (e.g., coverage of all states) that make 1986-1992 data noncomparable with more
recent data. The DOL announced in December 2002 that the MLS program was terminated again
due to lack of a funding source, but in P.L. 108-7, the omnibus FY2003 appropriations bill,
Congress included money in the BLS budget for resumption of the series.
The MLS program consists of two series:
• In its monthly series, BLS defines a mass layoff as an event involving 50 or more
workers from a single establishment who file initial claims for UI benefits. The
only information available on a monthly basis is the number of layoff events and
the number of initial UI claimants disaggregated by state and industry group
separately.
• In its quarterly series, BLS provides more detailed information on extended
(permanent) mass layoffs, which are defined as those above-described layoffs
that last more than 30 days. Additional information is obtained by querying

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employers that have layoffs lasting beyond 30 days, including the reason for the
layoff and whether it involved the movement of work. Covered establishments in
both series included employers throughout the economy until 2004. For
budgetary reasons, the extended mass layoff series began covering only nonfarm
employers in the private sector. The mass layoff series, which is based solely on
administrative records, continues to include agricultural and government
employers.
Data over time from the monthly and quarterly series are shown in Table 1.
Table 1. Short- and Long-Term Mass Layoff Activity
^{Mass Layoffs}^{Extended Mass Layoffs}
^{Initial UI}^{Initial UI}^Separated
^Year^Events^Claimants^Events^Claimants^Workers
¹⁹⁹^{6 14,1}¹¹^1,43^7,62⁸^4,76⁰^805,⁸¹⁰⁹⁴^8,12²
¹⁹⁹^{7 14,9}⁶⁰^1,54^2,54³^4,67¹^879,⁸³¹^947,⁸⁴³
¹⁹⁹^{8 15,9}⁰⁴^1,77^1,06⁹^4,85⁹^1,05^6,46²⁹⁹^1,24⁵
¹⁹⁹^{9 14,9}⁰⁹^1,57^2,39⁹^4,55⁶^796,⁹¹⁷⁹⁰^1,45¹
²⁰⁰^{0 15,7}³⁸^1,83^5,59²^4,59¹^846,²⁶⁷⁹¹^5,96²
²⁰⁰^{1 21,4}⁶⁷^2,51^4,86²^7,37⁵^1,45^7,51²^1,52^4,83²
²⁰⁰^{2 20,2}⁷⁷^2,24^5,05¹^6,33⁷^1,21^8,14³^1,27^2,33¹
²⁰⁰^{3 18,9}⁶³^1,88^8,92⁶^6,18¹^1,20^0,81¹^1,21^6,88⁶
²⁰⁰^{4 15,9}⁸⁰^1,60^7,15⁸^5,01⁰^903,⁰⁷⁹^993,⁹⁰⁹
²⁰⁰^{5 16,4}⁶⁶^1,79^5,34¹^4,88¹^834,⁵³³^884,⁶⁶¹
²⁰⁰^{6 13,9}⁹⁸^1,48^4,39¹^4,68⁹^836,¹⁵¹^894,⁷³⁹
^Source:^{U.S. Bureau of La}^{bor Statistics data on mass layoffs cove}^{ring employees in all industries a}^{nd on}
^{extended mass}^{layoffs covering e}^{mployees in the}^private^nonfarm^{sector (i.e., excludes agriculture a}^nd
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^Note:^{The numbe}^{r of sepa}^rated^{workers often is larger}^tha^{n the}^num^{ber of initial UI claimants bec}^{ause not all}
^{separated worker}^{s file for be}^nefit^{s. In contrast}^{with th}^{e figure}^{s on}^{separated worker}^{s, which ar}^{e p}^r^{ovided by}
^{employers with e}^{xtended mass}^{layoffs or worksite closings, the fig}^{ures on initial UI claimants are}^fr^{om the}
^{regular UI r}^{eporting sy}^{stem a}^{nd may include claimants w}^{ho are n}^{ot part of a mass}^{layoff or closing.}
In light of the increased interest in offshoring and the lack of data, BLS began in 2004 to ask
employers who called extended mass layoffs questions about whether movement of work—either
within or outside the United States—was associated with these events. Because the MLS
quarterly series excludes layoffs of government employees, layoffs called by small firms, and
layoffs in which fewer than 50 employees are terminated, it is likely to understate job loss
associated with offshoring generally and job loss involving white-collar workers in the service
sector particularly (e.g., accounting clerks at financial services firms, radiologists at medical
services providers). Thus, no database exists that provides anything approximating a complete
count of workers separated from payrolls because their company relocated their functions beyond
U.S. borders.
With these caveats, the BLS series shows that outsourcing—particularly of work moving
offshore—is uncommon in extended mass layoffs and accounts for fairly few of the workers

terminated in these actions. In 2006, for example, 54,166 workers were involved in the 242
extended mass layoffs that involved movement of work within and outside the United States.
These workers accounted for some 10% of all workers let go in long-lasting large-scale layoffs
conducted for nonseasonal/nonvacation reasons. Employer restructuring (bankruptcy, business
ownership change, financial difficulty, and reorganization within a company) typically is the
reason underlying a majority of these layoffs. Most workers separated in extended mass layoff
events involving domestic or offshore outsourcing had been employed by manufacturers, ⁴
oftentimes transportation equipment manufacturers.
Relocation of work most often occurs within the United States and within the same company. In
2006, employers provided complete information on 227 movement-of-work actions associated
with the 242 extended mass layoffs that involved work relocation within and outside the United ⁵
States. Only 13,067 laid off workers were let go in out-of-country relocations of work. They
accounted for 39% of all workers separated in extended mass layoffs involving movement of
work for which complete information is available and 2% of all workers terminated in
nonseasonal/nonvacation extended mass layoff events. In these offshore relocations of work, jobs
most often are shifted to Mexico and China.
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