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. 

RELATED TERMS
  1. Challenger Job-Cuts Report

    The Challenger Job-Cuts Report is a monthly report produced by ...
  2. Zero Layoff Policy

    A zero layoff policy dictates that no employees shall be terminated ...
  3. Featherbedding

    Term used to describe the practice of a labor union requiring ...
  4. Notice of Termination

    A notice of termination refers to how an employer notifies an ...
  5. Workers' Compensation Coverage ...

    Workers' compensation coverage A protects employees and provides ...
  6. Workers' Compensation

    Workers' compensation is a publicly-sponsored system that pays ...
Related Articles
  1. Investing

    Layoffs And The Stock Market

    Layoffs may indicate a company's failings, but they can also lead to an increase in the company's stock price.
  2. Insights

    What Increasing Tech Layoffs Mean For Silicon Valley (YHOO, ADSK)

    Find out the reasons for layoffs by Bay area tech companies in 2016. Learn which factors indicate that the regional job market is still strong.
  3. Personal Finance

    Alternatives To Layoffs

    Companies lay off employees during times of economic hardship, but there are other, less severe, ways to cut back on the money spent on salaries.
  4. Personal Finance

    Layoff Protection Plans: Good Deal Or Gimmick?

    If you get laid off, these plans can be of great value, but the best protection may be to avoid big purchases altogether.
  5. Investing

    Why Retail Layoffs Are on the Rise

    Many retailers are struggling, which is leading to increased layoffs. But it's not all bad news.
  6. Insights

    Layoffs Bode Ill for Microsoft's Phone Biz (MSFT)

    The software giant's efforts to transform itself into a genuine player in the smartphone market may be failing as today's layoffs indicate.
  7. Personal Finance

    How to Lay Off Staff

    Firing employees isn't easy, but it is simple: Be honest, be compassionate and be quick.
  8. Small Business

    How to Make a Layoff Less Painful

    Getting laid off is never fun, but there are ways you can prepare yourself emotionally and financially to best manage a layoff.
  9. Personal Finance

    How a Late Career Layoff Impacts Retirement

    Taking these steps can help reduce the impact of a late career layoff on future retirement income.
RELATED FAQS
  1. Is your salary on your credit report?

    Your salary is not on your credit report, as of 2016. It has been at least 20 years since credit reports included salaries. Read Answer >>
  2. Do minimum wage laws make labor a fixed or variable cost?

    Find out why labor is a classified as a semi-variable cost by the minimum wage laws; labor has elements of both fixed costs ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center