Steve Bain

Displaced Workers (Dislocated Workers)

The term displaced workers (also known as 'dislocated workers') refers to the employees who are laid off by business cutbacks, closure, or relocation. It results in a form of structural unemployment that may only be temporary, but that could last indefinitely depending on the circumstances.

It is, of course, entirely possible that job displacement can occur due to a cyclical downturn in the economy, in which case the result would be cyclical unemployment rather than structural unemployment, but it is more usually the case that this sort of unemployment is structural in nature.

Typically it has occurred when firms in long-term declining industries have been forced to cease operating due to insolvency. In these circumstances it is also typical that a significant proportion of the displaced workers will have unique skills that are not transferable to other industries, and a difficult problem of skills mismatch results where alternative employers require completely different skills to those that the redundant workers possess.

Dislocated Workers & Employee Options

Not all dislocated workers will suffer the problem of having redundant skills. The range of career occupations within any industry is very wide, and it is quite possible for many of those occupational skills to be transferable.

For example, when the coal mining industry declined, it was not only miners at the coalface that lost their jobs, there were also many office workers, engineers, tradesmen and so on that were also laid off, but these workers were easily able to adapt their skills for alternative employers. These types of employees quickly gain new jobs, and so they quickly fall off the unemployed statistics.

The displaced workers who do have redundant skills face a much tougher choice of either seeking new employment in a low-skill occupation for reduced wages, relocating to a new area where surviving firms in the declining industry still require the skills that they have, or a prolonged period out of work and reliant on welfare benefits.

If they later option is chosen, the worker will be well advised to seek new training opportunities, and for that most countries do make provisions in the form of various support programs. In the United States there is the 'Dislocated Worker Program' discussed below.

Displaced Workers Over 50

Special mention needs to be given to displaced workers over 50 years of age, because there is a strong tendency for these people to opt out of the labor force altogether when they are made redundant - and especially so if they lack transferable skills. Instead of seeking new jobs, they often opt for early retirement, and in so doing the labor force participation rate will fall.

In times of prolonged recession, the lack of employment opportunities can cause displaced workers to become discouraged workers i.e. when job seekers stop looking for work because they lose confidence that they can find it. This is particularly problematic with displaced workers over 50, and they can take early retirement in such numbers that the overall labor force participation rate can remain permanently reduced once the economy recovers from recession.

It is too early to know for sure, but the Covid-19 lockdowns (that prevented many people from going to work) may have ongoing costs in terms of a permanently reduced labor force participation rate if older workers decide to take early retirement rather than go back to work once lockdowns are over.

Displaced Jobs & Company Options

For companies, the displaced jobs that they may have to create in one location may have to come with additional training costs in another area - assuming that the company is relocating to a new area. Typically, many relocating firms (especially in the declining manufacturing and heavy industry sectors) have been forced to 'offshore' many jobs to low cost countries like China. Those companies that have resisted this sort of move have often faced insolvency at a later date.

Some countries do offer lots of incentive schemes for relocating firms under a package of 'inward investment' opportunities. These relocations can be beneficial for all parties, but the deindustrialization of many western countries has not been handled well. Long term structural unemployment has been suffered with all sorts of associated effects. There has also been persistent trade deficits for many countries that were once manufacturing powerhouses.

Dislocated Worker Program

The Dislocated Worker Program in the US is an example of the sort of services that are typically provided to people who have lost their jobs due to their employer closing down, downsizing, or relocating.

The package of services offered are usually tailored to the needs of people who have not had to seek employment for a long time, and are therefore ill-prepared with respect to the resume and interview skills. It's also normal for these people to have a basic lack of awareness about the types of alternative employment options that might be available, so these programs can be of help.

The limited empirical evidence that exists does suggest that help with job search and interview skills does make a significant difference, and it is cheap and cost effective to provide these services for displaced workers. For details of the sort of support available, see the link to the flyer below.

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