Understanding Layoffs:Definitions,Statistics and Real-Life Example(Will Kenton)

Understanding Layoffs: Definitions, Statistics,

and Real-Life Example

By Will Kenton

Updated December 10, 2025

Reviewed by Margaret James

Investopedia / Mira Norian

Definition
Layoff: A termination of a worker's employment for business rather than performance reasons.

A layoff is the involuntary termination ofan employee's job, typically for reasons unrelated to the employee'sperformance, such as cost-cutting or organizational changes.

Key Takeaways

A layoff is a cost-cutting measureinitiated when companies need to reduce expenses, often due to economicdownturns or strategic changes.

Laid-off workers typically qualify forunemployment benefits and may continue health insurance under COBRA, thoughit's typically more expensive.

Mass layoffs can negatively impact thelocal economy and the remaining workers by increasing stress and reducingmorale.

Employers sometimes prevent layoffs byoffering voluntary buyouts or encouraging early retirement as alternatives.

Layoffs can be financially andpsychologically damaging, but government programs can provide interim support.

What Is a Layoff ?

A layoff is an involuntary jobtermination, usually initiated by the employer as a cost-cutting measure.1 Laid-offworkers can get government unemploymentbenefits, while those fired for cause can't.
Some employers offer severance pay tolaid-off workers, often based on how long they've worked. Mass layoffs can harmlocal economies, especially if they rely on one employer or industry.

Exploring the Impact and Causes of Layoffs

Layoffs typically affect groups of workersrather than single individuals. They are a cost-cutting measure that may beprompted by a company's change in strategy or financial difficulties. Theyoften happen when a new owner merges departments after buying a company.

Layoffs are understandably unpopular withworkers, whether their employers call them "downsizing,""rightsizing," or "smart sizing." A layoff can also becalled "workforce reduction" or "reduction in force."
Companies seeking to avoid or minimizelayoffs sometimes offer their workers a voluntary buyout withfinancial inducements to leave voluntarily. Older employees might get earlyretirement offers, swapping their paycheck for retirement benefits.

Important

In some cases, employers conduct layoffseven when their businesses are thriving, either to increase their profitsor as part of a shift in operations.

Comparing Layoffs, Furloughs, and Firings

A layoff is generally intended to bepermanent, although rehires arenot unknown if a company backtracks on a decision.

A furlough isintended to be temporary and is usually due to a short-term productionshutdown. Workers who have been furloughed may keep their job titles andemployee benefits with the expectation that they will eventually return towork.1

Public service employees face a furloughwhen legislators deadlock on the budget appropriations that are required to paytheir salaries. During a governmentshutdown, non-essential workers may be furloughed while workers inessential services are forced to work with their pay delayed until a fundingagreement is reached.

Furloughed workers may be eligible tocollect unemployment insurance benefits depending on eligibility requirements,which are set by the states.2

An employee may be fired or terminated onthe grounds of unsatisfactory performance, malfeasance, or breach of duty. Anemployee who is terminated with cause generally does not qualify forunemployment insurance.

Case Study: Mass Layoffs During theCOVID-19 Pandemic

U.S. employers resorted to mass layoffsamid a drastic downturn in demand during the early stages of the COVID-19pandemic, as restrictions and contagion fears halted travel, shut restaurants,and idled many other service industries.

U.S. employers cut more than 20 millionjobs in April 2020 alone, according to the U.S. Bureau of Labor Statistics (BLS).3

To preserve jobs, the U.S. governmentoffered the PaycheckProtection Program, with loans subsidizing businesses' payroll costs thatwould be forgiven under certain conditions. The program was intended toencourage businesses to keep their workers on through the pandemic.4

Key Layoff Statistics and Trends

Statistics on layoffs are a key componentof the larger numbers on total employment such as the monthly data on nonfarm payrolls andthe unemploymentrate.

The monthly Job Openings and LaborTurnover Survey (JOLTS), from the Bureau of Labor Statistics, is acount of "separations" from employment for all causes, includinglayoffs, resignations, firings, transfers, retirements, and death. From all ofthese numbers it reaches a number for job openings.
For September 2023, for example, theBureau announced that job openings nationwide totaled 9.6 million, virtuallythe same as the previous month. There also was little change in the numbersthat make up that total, which include all job separations, voluntary andinvoluntary.5

Broader Impacts and Considerations ofLayoffs

The workers who lose their jobs bear thebrunt of layoffs, but mass job losses also hurt the workers who remain, theircommunities, the broader economy, and even the employer.

Moreover, they may not offer the financialboost that companies are hoping for when they embark on mass layoffs. StanfordGraduate School of Business Professor Jeffrey Pfeffer argues that the recentrounds of layoffs among Big Tech companies were unnecessary and, for thatmatter, did the companies no good at all. He dismisses the entire phenomenon as"copycat behavior" among tech companies.6

The downsides include high levels ofstress for both laid-off employees and those left behind, and a deteriorationof the customer experience. Not least, layoffs can cost the company more thanthey save in the long run.

What Should You Do When You Get Laid Off ?

The firststep after a layoff is to carefully review your contract of employmentand any severance package your former employer is offering. This may includeseverance payments, continuation of benefits, and healthcare insurance.

Employers may attach conditions toseverance agreements, such as requiring that you not claim unemploymentinsurance.

It may be a good idea to negotiate yourseverance agreement and have an attorney review any paperwork before you sign.

What Happens to Your Health Insurance WhenYou Get Laid Off ?

In most cases, your employer will stoppaying for health insurance at the end of the month if you are laid off. Youcan then continue your coverage through the federalCOBRA program for a term of 18 to 36 months. You will get the sameinsurance you had as an employee at the rate that the company has negotiatedfor its employee coverage.78

COBRA coverage is significantly moreexpensive than employer-provided health insurance. You may be better offgetting coverage through one of the plans offered under the AffordableCare Act. During the time you're unemployed, you should qualify for asubstantial subsidy for the coverage and may pay little or nothing for it.

How Long After Being Laid Off Can I Filefor Unemployment ?

According to the U.S. Department of Labor,you should file for unemployment insurance benefits as soon as possible if youbecome unemployed. To be eligible for unemployment insurance, you must be laidoff or fired through no fault of your own and meet certain wage and workrequirements, such as the length of time you held your previous job. Somestates have additional requirements.9

What Happens to My 401(k) After a Layoff ?

Depending on the size of your 401(k), youmay be able to leave it with your former employer.
It may be better to transfer the balance,either to a new employer or into an Individual RetirementAccount (IRA).

It is essential to transfer the balancethrough a directtransfer between financial institutions rather than allowing theadministrator of your former employer's 401(k) plan to cut you a check.Otherwise, you could owe income taxes on the entire balance.1011

Who Gets Laid Off During a Merger ?

Following a mergeror acquisition, many companies eliminate redundancies in their combinedworkforce. This will typically affect the C-suite aswell as any area where the new company has two departments performing similarfunctions. Human resource and payroll departments are a frequent target.
Since it's hard to predict which workerswill be laid off, mergers are inevitably a source of anxiety for all employees.

The Bottom Line

Layoffs are a painful fact of life in amarket economy exposed to intense competition and a constant search for higherprofits. Layoffscan be damaging psychologically and financially to the affectedworkers and those who are left behind, as well as to their families,communities, colleagues, and other businesses.
Employees at risk of layoffs should beaware of government programs that provide income and health coverage betweenjobs.

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凡事唯有投入，結果才能深入; 凡事唯有付出，結果才能傑出; 凡事唯有磨鍊，結果才能熟練; 凡事唯有不煩，結果才能不凡。
能與智者同行，你會不同凡響; 能與高人為伍，你能登上巔峰。
你雖不能改變環境,但卻可以轉換心境;
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Dr. Chao,Dep.of Finance,Nanhua University,Taiwan.
website:amazon.com/author/drchao

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