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Quits, Layoffs, and Labor Supply

Institute Working Paper 94 | Revised October 11, 2024

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Authors

Kathrin Ellieroth Visiting Scholar, Institute
Amanda Michaud Senior Research Economist, Institute
Quits, Layoffs, and Labor Supply

Abstract

We develop a time series of quits and layoffs using the Current Population Survey, and analyze their relationship with labor supply decisions over the business cycle. Our findings challenge the assumption that most labor force exits from employment (EN) are voluntary quits. Instead, we show that 40% of these exits are precipitated by layoffs. With this distinction, both quits to non-participation and the share of workers exiting after a layoff falls during recessions. A workhorse search model is used to frame how these facts add nuance to our understanding of business cycles. Additional results explore regularities of these patterns in the cross section of workers, in the COVID-19 recovery, and in comparison to the JOLTS series on quits and layoffs.