408(k) Plan

What is a layoff?

A layoff describes the act of an employer to suspend or fire a worker, temporarily or permanently, for reasons other than an employee’s actual performance. A layoff is not the same as outright dismissal, which can result from ineffective workers, embezzlement or a breach of their duties.

In its initial context, a layoff was meant to be a temporary work stoppage, but over time, the term changed to describe a permanent lack of work. A layoff can happen to a displaced worker whose job has been cut because an employer has closed or moved. A worker can also be replaced due to a slowdown or stoppage in production.

In some cases, employers even lay off workers when their businesses prosper because they anticipate economic uncertainty, and so they anticipate difficult times by increasing incomes.

Understanding layoffs

Layoffs can occur for a variety of reasons that can affect an individual or a group of workers, in the public and private sectors. Generally, layoffs are carried out to reduce salary expenses, with the goal of increasing shareholder value. Layoffs can occur when an employer’s strategic business goals or processes change, faced with declining revenues, the adoption of automation, offshoring or outsourcing.

Related terms

Since layoffs are naturally unpopular with workers, the term has a number of synonyms, as well as several euphemisms. For example, layoffs can also be called “downsizing”, “resizing” or “resizing”.

Likewise, a laid-off worker may become unemployed as part of a “downsizing”, “downsizing”, “redeployment” or “excessive reduction”. Employees at the end of their career can benefit from an “early retirement”, which means that they will stop working and stop receiving a paycheck, but will remain eligible for retirement benefits.

Psychological effects of layoffs

As workers bear the brunt of layoffs with lost wages and uncertain unemployment, the effects of layoffs are also felt in local and national economies. They also have an impact on workers who remain employed, following such reductions in the workforce.

For example, workers who have seen their co-workers laid off report increased anxiety and concern about their own job security. This often results in reduced motivation and employee attrition. Workers who have been laid off may also feel a certain level of mistrust of future employers, which is why some companies may try to lay off several workers at the same time, in order to mitigate the psychological blow and make sure people don’t feel isolated.

Mass layoffs can have a huge impact on the economy and the tax base of a community or region and can create a ripple effect among a country’s related industries.

Key points to remember

  • A layoff is the unpleasant act of an employer who fires a worker for reasons other than the actual performance of an employee.
  • A layoff differs greatly from an outright dismissal, which can result from ineffective work performance or unacceptable behavior in the workplace.
  • Layoffs can have a psychological impact on workers who remain employed, increasing concerns about their own job security.

In the United States, layoff data is collected by the Bureau of Labor Statistics, which tracks unemployment insurance claims. Its mass layoff statistics (MLS) program collects reports of mass layoffs that result in the separation of workers from their jobs. A massive layoff in this context affects 50 or more workers.

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