Q&A: Sectoral mobility among reemployed displaced workers in New England Q&A: Sectoral mobility among reemployed displaced workers in New England

Boston Fed economist Osborne Jackson discusses findings about industry switching after job loss Boston Fed economist Osborne Jackson discusses findings about industry switching after job loss

January 31, 2022

In a recently released report, New England Public Policy Center senior economist Osborne Jackson examines sectoral mobility, or industry switching, among long-tenured workers who become reemployed after losing their job. The report, titled “Job Displacement and Sectoral Mobility in New England,” analyzes the period of 1996 through 2019 – before the onset of the pandemic. It presents trends in reemployed workers’ movement between industries in the region and identifies the factors that increase or decrease the likelihood of a displaced worker becoming reemployed in a different industry.

Here, Jackson discusses some of the findings in his report and accompanying working paper and their policy implications. He also addresses how the findings might apply to the current labor market, where instead of being displaced in large numbers as they were at the beginning of the pandemic, workers are voluntarily leaving their jobs at an unprecedented rate.

Looking specifically at New England, and based on data from the years 1996 through 2019, in which industries have reemployed displaced workers tended to find new jobs?

On net, reemployed displaced workers seem to be drawn to the public administration, construction, and FIRE industries – finance, insurance, and real estate. In terms of reemployed displaced workers, post-displacement employment growth in those three sectors was 121%, 44%, and 32%, respectively. So, in public administration, for example, post-displacement employment growth among reemployed displaced workers led to a more than doubling of the number of such workers in that industry.

Which industries in New England have reemployed displaced workers tended to leave after losing their jobs?

They have tended to exit the industries of mining; agriculture, forestry, and fishing; and manufacturing. Among reemployed displaced workers, post-displacement employment of such workers in those industries fell by 100%, 49%, and 28%, respectively.

What might be influencing these trends?

These net movements might reflect general market patterns in those sectors. However, other factors might contribute to the trends as well. For instance, the public administration employment finding may signal worker preferences regarding job stability. That being said, there is a relatively large gross outflow of workers from that industry following displacement, which indicates that workers may also revise their perceptions about public administration job security after losing a job in that sector and seek employment in other industries.

In the report, you point out that workers who are displaced and subsequently reemployed tend to experience long-term earnings reductions – about 10% after more than 20 years following a job loss – and that earnings losses tend to be even greater for reemployed workers who switch industries. Given the latter finding, is it ill-advised for a displaced worker to seek reemployment in a different industry?

Maybe for some workers, sectoral mobility is not the first-best option. Ideally, such workers would have been continuously employed in their original position. But after being displaced, and in a world where one could perhaps remain unemployed with no earnings, sectoral mobility may be a second-best option. Additionally, sectoral mobility could be the first-best option for workers who receive new labor market information from the displacement that they didn’t have prior to the job loss.

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Which factors could increase the likelihood of a displaced worker transitioning to a different industry?

Having at least a high school diploma helps facilitate sector mobility after displacement, as does a similarity of industries in the worker’s local labor market, which is at the state level in this study. The former can be interpreted as reflecting the role of general skills in facilitating industry transitions, while the latter could reflect the role of industry-specific skills.

Which factors reduce the probability of same-industry reemployment versus nonemployment?

The research finds that being 55 or over or losing a job during a period that includes a downturn such as the 2008–2011 period, which includes the Great Recession, are factors that reduce the probability of same-industry employment versus nonemployment. So, the effectiveness of policy related to displaced-worker reemployment might benefit from differential strategies to account for this varying vulnerability to nonemployment.

Do the findings from the report and paper have other policy implications?

Very generally, policymakers should continue to recognize the importance of sectoral mobility in facilitating displaced worker reemployment. Such consideration is especially valuable since unanticipated shocks in an economy may sometimes make it challenging to prevent displacement. More downstream is that to facilitate sectoral mobility after job loss, policies could encourage the accumulation of general skills, especially a high school diploma or equivalent, and industry-specific skills.

The current environment is different from the pre-pandemic period that you analyzed, and different from the months immediately following the onset of the pandemic, when job losses spiked. Now, workers are quitting their jobs in record numbers. Could any of your findings on sectoral mobility after displacement apply to switching industries after voluntarily leaving a job?

The study shows that workers who experience a job displacement are more likely to change industries than observably similar workers who voluntarily leave a job. Taken at face value, that finding suggests workers who are currently quitting would be more likely to switch industries if they were displaced instead. However, given some new labor market considerations since the onset of the pandemic, it would be important to assess whether that result holds in the current environment as it did in the pre-pandemic period, once requisite data were available. Such new analysis could also reassess the impact of general and industry training on facilitating sectoral mobility for current workers.

More descriptively, in the pre-pandemic period in New England, the findings show that 63% of workers displaced from employment in various services are reemployed in that same industry, followed by 14% of those displaced workers being reemployed in the FIRE industry. However, the applicability of those patterns to the current period is unclear, given the large impact of the pandemic on the services industry, and when also focusing on workers with voluntary job separations rather than involuntary separations. Thus, further analysis of sectoral mobility in the current period would be of interest, including an exploration of the characteristics of the associated industries and workers.

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