February 2009 No.2
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Articles:
A History of the Illinois Oil Industry
A Different Perspective on Outsourcing and
Offshoring
A DIFFERENT PERSPECTIVE ON OUTSOURCING AND OFFSHORING:
MASS LAYOFFS IN ILLINOIS AS A RESULT OF DOMESTIC OR FOREIGN RELOCATION OF WORK
The impact of the outsourcing and offshoring of jobs has been the subject of numerous studies over the past decade, but there is little agreement on the number of jobs actually lost due to these business activities. Beginning in 2004, the federal-state Mass Layoff Statistics (MLS) program expanded its data collection to capture information on jobs lost due to the domestic and foreign relocation of work. This article provides a brief analysis of mass layoffs in Illinois that occurred as a result of the relocation or movement of work by employers. Also presented are the characteristics and the employment and earnings of the workers who were separated due to movement of work.
Background
The MLS program reports layoffs that involve at least 50 workers and last more than 30 days. Business establishments are identified as having potential mass layoffs if at least 50 initial Unemployment Insurance (UI) benefi ts claims are filed against them within a five-week period. State analysts telephone employers identifi ed as having potential layoffs and ask them a series of questions to obtain data not available in UI administrative records, including: the actual size of the layoff, the total worksite employment just prior to the layoff, the primary reason for the layoff, the open/closed status of the worksite, and worker recall plans, if any. The survey is voluntary, but the employer response rate in most states is high, exceeding 90 percent.
Outsourcing, for the purpose of this discussion, is the movement of in-house work, paid directly by a company, to a different company. The different company may be located within or outside the U.S. Offshoring refers to the movement of work from inside the U. S. to other countries, regardless if the work was moved to a foreign location within the same company or to a foreign location of a different company. Layoffs may also involve domestic relocation of work within the same company and not outsourcing or offshoring of work.
Employers who report non-seasonal mass layoff events are asked questions about jobs lost due to the movement of work. These questions are:
1) Did this layoff include your company moving work from this location(s) to a different geographic location(s) within your company? and
2) Did this layoff include your company moving work that was performed in-house by your employees to a different company through a contractual agreement?
Employers that answer “yes” to either or both of the questions are then asked to identify the geographic area to which the work was moved as well as the number of workers laid off as a result of that action. If the move was domestic, then employers are asked to identify one or more states the work was moved to. If work was moved outside the U.S., then employers are asked to identify the country or counties of destination.
Layoffs are classified as outsourcing if employers answered “yes” to the second question regardless if the work remained on-site, was moved to another state or moved outside the U.S. Layoffs are classifi ed as offshoring if employers answered yes to either or both questions and work was moved outside the U.S. Prior to 2004, the MLS program reported data on domestic and overseas relocations of jobs based on the primary reason for the layoff
provided by the employer. However, in these instances, domestic and overseas relocations of jobs were the “effects” of the layoffs and not the actual “reasons” for the layoff.
Overview of Illinois Movement of Work Layoff Data
Only a small percentage of all non-seasonal mass layoffs in Illinois involved the movement of work inside or outside the U.S. During 2004- 2007 there were 201,680 Illinois workers separated due to non-seasonal reasons, with most recalled within 90 days. Of those separated for nonseasonal reasons, 19,914 or about 10 percent were laid off permanently due to the movement of work inside the U.S. or out of the country.
Approximately 90 percent of the worker separations reported were due to work moved within the same company. Four out fi ve layoff events involved
work moved to domestic locations. The top destinations for domestic relocation of work were states in the Midwest and South. The number of workers separated by region are not available because some employers were not able to report job cutbacks by the locations work was moved to. For example, a company could say that 1,000 jobs were lost due to work moved to two separate states, but not be able to indicate how many or what proportion of the jobs lost were due to work moved to state A and state B.
Thirteen percent of the layoff events were the result of work moved to outside the U.S. Mexico was mentioned most frequently among foreign locations. Some layoff events involved work moved to both domestic and foreign locations. The number of workers separated was not available as some layoffs involved work moved to multiple locations.
Just six percent of the movement of work layoffs were due to the outsourcing of work.
More than three-quarters of employers reported reorganization within company as the primary reason for the movement of work. Other reasons cited by employers included business ownership change and import competition.
About two-thirds of layoffs due to the movement of work resulted in the closure of worksites, resulting in nearly 15,000 workers losing their jobs.
About two out of three jobs lost in Illinois due to movement of work were in Manufacturing. Other industries impacted included Transportation
- Warehousing - Utilities, Information, Financial Activities, Professional and Business Services and Educational and Health Services.
Characteristics of Workers Displaced in Movement of Work Layoffs
The socio-economic characteristics of workers displaced by domestic or foreign relocation of work were captured in initial claims applications for Unemployment Insurance (UI) benefi ts and Employment Service registrations. As part of our analysis, we compared the characteristics of those who were laid off in movement of work layoffs versus those were separated in all other extended mass layoffs - see Table 1. We should note that a large percentage of those who were included in the all other layoffs group were later recalled by their separating employer. As a result, many of the workers in the all other layoffs group were exempt from registering with the Employment Service - hence the relatively high percentage of “not available” reported for educational attainment and occupation.
Men and women each comprised about half of the separations in movement of work layoffs. But in all other layoffs, about 60 percent of the displaced workers were men.
Those reported in movement of work layoffs tended to be older. More than half of those displaced in movement of work layoffs were age 45 and older, as compared to 40 percent for all other layoffs.
The racial composition of workers separated in movement of work and all other layoffs was about the same, with racial minorities making up 40 percent of both groups. There was a slightly higher percentage of Hispanics reported in movement of work layoffs (18 percent) as compared to all other layoffs (14 percent).
Workers displaced in movement of work layoffs were better educated, with 25 percent attaining at least 13 years of education as compared to 16 percent of all other workers.
The duration of unemployment was longer for those separated in movement of work layoffs, with more than half exhausting 26 weeks of regular UI benefits. This compares to a UI exhaustion rate of about 20 percent in all other layoffs.
About three-quarters of workers laidoff in movement of work layoffs were in Manufacturing as compared to 14 percent of separations in all other layoffs. About one in four workers separarated in all other layoffs were employed in Professional and Business Services.
One in five of workers separated in movement of work layoffs were formerly employed in production occupations, as compared to one in ten workers in all other layoffs. The percentage of workers formerly employed in Professional and Managerial and Services in movement of work and all other
layoffs was relatively close.
Post-Layoff Employment Status and Earnings Recovery
This section will describe the post-layoff employment status and earnings recovery of workers separated in movement of work layoffs, with comparisons to workers in all other, non-seasonal layoffs. Employment status and earnings data were captured through quarterly UI wage records submitted by employers to the Illinois Department of Employment Security (IDES). Wage records are used by IDES to determine the monetary eligibility of workers who file for UI benefits. Employment here is defi ned as having earnings during any part of the quarter, regardless of how many hours were worked.
Earnings recovery is defi ned as the average earnings for each quarter post-layoff divided by the average earnings for the four quarters prior to the layoff.
The time frame in this part of the article is slightly different than in the previous sections. We analyzed employment and earnings data for layoffs reported in years 2004 and 2005 only. This time frame was chosen so that we could track employment and earnings over eight quarters or two full years. As of this writing, relatively few quarters of wage records were available for all workers laid off in 2007. For example, we had just three quarters of post-layoff wage records for those laid off during the quarter including July-September 2007 and only two quarters of wage records for those separated during October-December 2007.
About two-thirds of the workers who were displaced because of the relocation of work were employed one year after being laidoff; the percentage employed in this group two years post-layoff was about the same. These workers recovered, on average, 75 percent of their earnings one year later
and 83 percent of their earnings two years after being laid off. By comparison, threequarters of all other workers separated in nonseasonal layoffs found jobs within six months and saw their earnings grow by 14 percent over two years. As was described earlier, the all other layoffs group includes workers who were recalled by their separating employers. See charts 1 and 2 below, and Table 2.
The post-layoff employment status and earnings recovery of men and women in movement of work layoffs were about the same. However, in movement of work layoffs, the previous earnings were 30 percent higher for men as compared to women.
Reemployment success and earnings recovery correlated strongly with age, for both groups of workers examined. Workers less than 45 years old had the greatest success finding new jobs and also recovered or surpassed their previous earnings. By comparison, less than half of those age 55 and older who were reported in movement of work layoffs found new jobs after two years and recovered two-thirds of their prior earnings.
There was no consistent pattern of reemployment and earnings recovery among racial groups, particularly for those displaced in movement of work layoffs. White workers who lost jobs in movement of work layoffs had the highest pre-layoff earnings but low reemployment and earnings recovery rates. Black workers had among highest reemployment and earnings recovery rates among those laid off in movement of work layoffs but also relatively low earnings. Hispanic workers reported the highest earnings recovery but also the lowest prelayoff earnings. Workers in the all other layoffs group had greater success fi nding new jobs as compared to those separated in movement of work layoffs (with the exception of Black workers). This group also saw their earnings grow steadily over two years.
Educational attainment was a strong factor in finding new employment and recovering lost earnings. Those with at least 13 years of education who were separated in movement of work layoffs not only reported the highest prelayoff earnings but also had the most success in finding new jobs that paid a large share of their pre-layoff earnings. Also, workers laid off in movement of work events also had signifi cantly higher earnings than workers with the same educational attainment in the all other layoffs group.
Workers with the longest duration of unemployment had the least success finding jobs and recovering previous earnings. Less than 60 percent of those who were displaced in movement of work layoff events and exhausted 26 weeks of regular UI benefi ts found new employment after two years. This group of UI benefi ts exhaustees lost nearly 30 percent of their previous earnings. By comparison, nearly two-thirds of the UI benefits exhaustees in the all other layoffs group found jobs after two years and recovered about 90 percent of their previous earnings.
About three-quarters of the workers separated in movement of work layoffs were formerly employed in Manufacturing. These workers reported among the highest previous earnings but also the lowest rates of reemployment and earnings recovery. Manufacturing workers reported in all other layoffs saw greater reemployment success and recovered all of their previous earnings.
Within movement of work layoffs, those formerly employed in Professional and Managerial and Services occupations had greater success in fi nding new jobs and recovering previous earnings as compared to those who were employed in Production occupations. In the all other layoffs group, individuals who used to be employed in Professional and Managerial occupations did not enjoy greater success in fi nding new jobs and actually saw their earning decline over two years.
Industry of Re-employment: Where did workers laid-off inManufacturing find new jobs?
As part of our analysis of individuals displaced in movement of work layoffs we examined the industries and earnings within those industries that workers formerly employed in Manufacturing found new jobs. We chose Manufacturing workers as they represented 75 percent of those separated in movement of work layoffs during the period studied.
Charts 3 and 4 below describe the industries that Manufacturing workers were reemployed in during the eighth quarter following their layoff. The charts include the percentage of previous earnings that were recovered within each industry group. Comparisons were made between workers separated in movement of work layoffs and all other layoffs. About 30 percent of Manufacturing workers separated in movement of work layoffs were reemployed in Manufacturing, another six percent found new jobs in Administrative and Waste Services (which includes temporary help services) and five percent in Retail Trade. The percent reemployed in other industry groups were less than five percent each. Workers reemployed in Manufacturing nearly recovered all of their previous earning but those who found new jobs in Administrative and Waste Services and Retail Trade replaced only about half of their prior earnings.
Conclusions
The analysis presented here should challenge the conventional wisdom on layoffs resulting from the relocation of work. We found that layoffs resulting from the movement of work represented only a small portion of all mass layoffs. We also found that the vast majority of these layoffs were due work moved to within the Midwest, including Illinois. Additionally, the layoffs due to movement of work were heavily concentrated in Manufacturing, with
only a small number in other industries, such as Wholesale Trade, Transportation-Warehousing-Utilities and Financial Activities. Finally, those who were displaced in movement of work layoffs in 2004 and 2005 had difficulty finding new employment within two years, especially in jobs that paid at or above their previous earnings, despite relatively low unemployment in the years immediately prior to the current economic recession.
Questions and Answers
Why are the MLS outsourcing and offshoring numbers lower than what is commonly reported by the media and private studies?
The MLS program captures a portion of all outsourcing and offshoring activity. MLS does not report layoffs with fewer than 50 workers. Also, work may be outsourced to another company or offshored without jobs being lost. For example, a company can move work to one of its sites overseas or may contract services to another company without laying off employees in the U.S. Nonetheless, the MLS program is the only employer survey
operating in all states that reports job losses due to work outsourced to other companies and offshored to other counties.
Where can I find the names and locations of employers that reported outsourcing and/or offshoring to the MLS program?
The MLS program collects data from employers under a pledge of confi dentiality. Also, federal law prohibits us from disclosing the company names, locations, industries and other employer specific information obtained in the MLS program.
How frequently does the MLS program report layoffs due to outsourcing, offshoring?
MLS data, including layoffs due to the movement of work, are reported quarterly. Data may also be aggregated to annual totals to allow for expanded analysis.
Where can I fi nd national MLS data on outsourcing and offshoring?
You can find a paper developed by the BLS at http://stats.bls.gov/mls/mlsrelocation.pdf as well as in each of the quarterly MLS news releases issued by the U.S. BLS http://stats.bls.gov/news.release/mslo.toc.htm
What other type of layoff data are available from the MLS program?
Mass layoff reports for Illinois statewide and sub-state areas are available at http://lmi.ides.state.il.us/mls/mls.htm You can find national MLS reports at
http://stats.bls.gov/mls/home.htm
Questions on this article may be forwarded to Rich Reinhold at Richard.Reinhold@illinois.gov or (312) 793-5896