The Impact of Temporary Layoffs on the Subsequent Career of the Affected Workers

In order to compensate short-run fluctuations in labour demand, some firms temporarily lay off workers when facing a decline in product demand and rehire them later when demand for labour rises again. This paper examines, for the first time, the causal effects of this flexibilisation strategy on the subsequent career of the affected workers. The focus is not on season-related employment interruptions, but on temporary layoffs to mitigate cyclical fluctuations in labour demand. According to a counterfactual comparison with permanent jobs, persons on average are 80 days less in employment and 74 days more in unemployment as a consequence of taking up a recall-job with temporary layoff in the next six years. This is partly due to the interruption of employment. Temporary layoffs, however, also have a negative impact on integration into employment beyond the respective workplace. This is the case for both sexes and a large number of industries. The workers concerned are not receiving any higher wages in order to compensate for the wage loss during the layoff and to provide a financial incentive to wait for a recall ("compensating wage differentials").