Filed Under:  U.S. & World

How long will low layoff levels last?

Contributed by on January 9, 2015 at 6:14 am

Office layoffs

Woman reacts to layoff.

First, the good news. According to the latest figures from the US government, American companies have been laying off workers at the lowest level in over 15 years. This is great news. It really is. It is solid proof that the much vaunted and hyped recovery is indeed real. If you’re an investor, the recovery happened for you several years back. Indeed, the recovery’s been raging on Wall Street for over five years now. With the latest layoff and unemployment benefit filing numbers, it appears the recovery has finally made its way to Main Street.

Now for the bad news. Gauging the economy’s health based on layoffs is only useful up to a certain point. You see, easy corporate layoffs and mass firings are what makes the US job market more resilient and vibrant than Europe’s. Most European countries would kill to have the US’ unemployment rate. They really would. Why? Take France, for example. The jobless rate there can’t seem to sink past 10%. In fact, 10% would be a very nice unemployment rate as far as France is concerned. Thanks to heavy government regulation in the world of employment, wage regulations, and termination rules, European jobs are relatively more secure than jobs in the US. Due to ’employment at will’ laws, US workers are free to quit (as if the vast majority relish this right anyway) anytime and, in return, employers are free to fire workers at anytime as long as the reasons for the termination are not prohibited by law.
Believe it or not, the ease of firing people in the US, compared to the Euro zone, is what accounts for the high resiliency and fluidity of the US job market. Put in another way, layoffs, or more specifically, the corporate flexibility evidenced by its ability to lay off people leads to easier hiring in the future. Europeans don’t have this luxury, the ones lucky enough get tenure are very hard to fire. Sadly, the leaves 10 to 20% of the job market out in the cold.
With this background on the importance of easy layoffs to the US economy, the current low layoff levels might not be sustainable. It can only go up if the US needs flexibility as it adjusts to being the sole bright spot in the global economy as Japan and Europe slump while China continues to cool down. Don’t be surprised if layoffs spike in the near future. Considering its ‘cushioning’ effect, layoff spikes mean the US is still flexible enough to deal with shocks as they come. Case in point: JC Penney’s recent layoff of 4% of its staff and retail brand Macy’s decision to ax 40 stores in 2015.