No one likes a product recall. Manufacturers are going to lose a bunch of money and customers are then worried about whether or not their product is safe. Just about anything can be recalled, from cars to cribs. There’s even a government website that tracks the recalls. These recalls are bad.
But there are some recalls that are good. Employment recalls for example.
Even during a strong economy, there’s almost always a headline of a major employer laying off employees. Just last week Disney announced 700 as a part of a corporate restructuring. We hear about these because layoffs are usually announced giving employees time to find something else. In some cases they actually have to be publicly disclosed. Corporate restructuring are business speak for changing how a company or division does things. Here’s a good example:
A company has three offices and each office has its own HR and finance teams. In a restructuring, those teams might be laid off and HR and finance will be run centrally with fewer people.
That’s about as simple as a restructuring can get, but they are often quite complicated. The problem is that when companies lay off people, they often cut too deep or in the wrong places. The cuts aren’t always about getting more efficient, sometimes it’s just a matter of reaching a target for costs.
But say you accidentally lay off people with critical skills or knowledge. You might need to bring them back. Savvy employees may negotiate for promotions or pay raises, I’ve watched it happen. When employers bring back these former employees, it’s called a recall. And recalls are an important part of the labor market.
New research is showing just how important these recalls are to the labor market. In this case, 40% of people who become unemployed end their unemployment by returning to work for their last employer. Now in some cases this might be people quitting and returning, but recalls will account for a lot of this.
Recalls are good for a labor market that can be quite inefficient. Employers know what they can expect from that employee and likewise. Removing uncertainty is a big part of the labor market. The whole point of job descriptions, resumes, and interviews is to remove the uncertainty of matching the right person to the right job. Recalls get even better. From the study:
Unemployment spells that end with recalls are shorter, by about a month on average, than other unemployment spells. In other words, the probability of finding a new job at a different employer is much lower than the average exit rate from unemployment. The individuals who are recalled have longer job tenure before separation than other unemployed individuals. Recalls are also associated with better wage changes and with much lower occupational mobility.
So why don’t recalls get any press? For one thing the press likes to prey on our fears. Disasters, death, and crime get eyeballs. Layoffs too. But employers also do recalls more quietly. 700 people may be laid off and 300 hired back, but it won’t be in bulk. It may not even be to the same job, and it certainly won’t be all at once. Recalls are an important part of the economy. And they’re one more example of a labor market trying to be efficient, and failing. A perfect layoff would have no recalls.
Read: Recalls From Unemployment (National Bureau of Economic Research)