OECD labour markets are characterised by their dynamism. Each year, more than 20% of jobs, on average, are created and/or destroyed, and around one third of all workers are hired and/or separate from their employer. These large job and worker flows are driven by a continuous process of labour reallocation, both across industries and between declining and growing firms within industries. This reallocation is an important source of productivity gains, since more productive firms expand at the expense of less productive firms and earnings rise on average for workers changing jobs, particularly workers who voluntarily quit one job in order to move to another. However, high job turnover is also a source of insecurity for workers, especially those who are displaced from their jobs because their employer downsizes its workforce or goes out of business altogether. A common challenge facing OECD governments is to nurture labour market dynamism while keeping the adjustment costs that are borne by displaced workers as low as possible.

Many workers who lose their jobs involuntarily in the course of economic transformation and restructuring face substantial personal costs as a result of the considerable time spent out of work and/or lower wages when they do find a new job. In the flexible and dynamic labour market of the United States, around 4% of all workers with tenure of one year or more are displaced from their job each year. Around half of them find a new job again within one year but the other half struggles much longer. And among those who find a new job, many have to accept considerable wage cuts. Older workers, those with long job tenure, and those with low educational qualifications struggle most in finding a new job after displacement and have to accept the largest wage losses.

Worker displacement, or worker dislocation as the more commonly used term in the United States for job losses due to restructuring, downsizing and plant closure, is a long-standing policy issue. This is reflected in the United States in a range of earmarked programmes and additional funding targeted on dislocated workers, especially for those who have lost their jobs for trade-related reasons. This is different from many other OECD countries in which dislocated workers are treated just like all other unemployed people.

This chapter examines the prevalence and consequences of job displacement in the United States, and the impact of recent cyclical and structural evolutions in the US economy. Restructuring in the United States is often done through layoffs but the flexible labour market also means that many displaced workers find adequate jobs again. Nevertheless, only about one in two of them find a new job within one year and many suffer great damages in the form of long periods of unemployment and significant wage losses.

This chapter analyses the most important policy measures in the United States that take effect before workers are dismissed and aim to prevent excessive job displacements. This is done by looking at the role of employment protection legislation which determines the process through which employers can dismiss workers, short-time work and layoff aversion strategies. The chapter also looks into rapid response transition services aimed at connecting displaced workers to employment support to help them find new jobs quickly.

This chapter examines the sources and adequacy of income support available for displaced workers in the United States, with focus on the post-2008 recession period. Initially, unemployment insurance plays a critical role for displaced workers to cushion income losses; insofar, the immediate and repeated extension of the relatively short duration of unemployment insurance payments was critical. However, not everyone claims such benefit and of those who do, many exhaust their entitlement. Many of those workers depend on means tested income support which is rather minimal in the United States by international standards. As a consequence, a large share of displaced workers touches poverty at some point at least during a short period.

This chapter provides an assessment of the employment and training programmes available in the United States to help displaced workers back to employment. The US policy approach is unique in singling out displaced workers for help. Targeting services can be very effective but there is too little money in the system to help everyone who needs help and training supply in particular falls short of demand. The chapter also discusses the distinction made in the US system between trade related displacement and other job displacement, with the former group being entitled to a much larger array of services and benefits than other displaced or unemployed workers.