The Costs of Layoffs: Insights into Mobility and Recovery Patterns

Labor market outcomes for displaced workers are generally negative following dismissal. However, little is known about the timing and intensity of recovery patterns and the role played by labor mobility. Our research contributes to this literature by analyzing the employment trajectories of individuals laid off shortly before the two most recent and significant economic downturns: the Great Recession and the Covid-19 shock. We contrast these findings with those observed during the period between these two crises, also focusing on sectoral and geographical mobility. Leveraging an extensive dataset of employer-employee relationships from the Italian private sector, we match displaced workers with comparable non-displaced workers using a novel two-step matching procedure combined with a difference-in-differences estimator, taking into account attributes at both the firms’ and individual levels. We find that job displacement results in considerable costs in terms of employment and earnings, and that these costs become larger and more persistent during recessions. Additionally, our analysis demonstrates that labor mobility—encompassing both geographical and sectoral shifts—is a key mechanism for adjustment in the labor market, particularly during recessions. Mobility outcomes are highly heterogeneous across gender, age, sectors, and professional qualifications. Our results also suggest that the effects are strongly influenced by the economic context in which they occur, overshadowing the impact of individual characteristics.