What is a Layoff

A layoff is when an employer suspends or terminates a worker, either temporarily or permanently, for business reasons rather than employee performance. Layoff, in its initial context, was meant to denote a temporary work interruption, but has morphed to refer to a permanent lack or work, also known as redundancy. A layoff may happen to a displaced worker – one whose job has been eliminated because an employer has closed or relocated, or due to a production or work slowdown or cessation.

Breaking Down Layoff

Layoffs may happen for a variety of reasons and may involve individual workers or large or small groups of workers in the public or private sectors. Generally, layoffs are conducted to reduce overhead (salary) costs and may be enacted to provide better shareholder value. Layoffs may occur when an employer's business objectives or processes change due to a shift in strategy based on eroding market share or revenue, the adoption of automation, offshoring or outsourcing of jobs, or a variety of other reasons. A layoff differs from an outright firing, which may occur when a worker has been terminated for cause, such as when their employer believes that they are guilty of misconduct, malfeasance or breach of duty. A firing may also occur if a worker has failed at the task they were hired to perform.   

Layoff: Related Terms

Given that layoffs are understandably unpopular with workers, the term has a number of synonyms, as well as several euphemisms. For example, layoffs may also be referred to as a "downsizing," "rightsizing" or a "smartsizing." Similarly, a laid off worker may become unemployed as part of a "workforce reduction," "reduction in force," "redeployment" or an "excess reduction." Employees in a late-career layoff may be given "early retirement," meaning they will stop working and collecting a paycheck but will remain eligible for retirement benefits.  

Layoff Effects

While workers bear the brunt of layoffs with lost wages and the uncertainty of unemployment, the effects of layoffs are also felt in local and national economies, as well as among the workers who remain following such workforce reductions. For example, workers who have seen their colleagues laid off report greater anxiety over their own job security and reduced motivation. Workers who have been subject a layoff may also feel a level of distrust toward future employers, which is why some companies may try to lay off multiple workers at once to soften the blow. Layoffs, when large enough (such as in mass layoffs), may create a sizable impact on the economy and tax base of a community or region, and may create a ripple effect among related industries across a country.

In the United States, data on layoffs is collected by the Bureau of Labor Statistics which tracks unemployment insurance claims. Its Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. A mass layoff in this context involves 50 or more workers.