Pricing the Pink Slip

What if you could look up a number — updated daily, backed by real money — that told you how likely your employer was to lay you off in the next twelve months?

Not a rumour from the break room. Not a vague sense that things are slow. An actual price, set by people with skin in the game, reflecting everything the market knows about your company’s stability right now.

That number doesn’t exist. I think it should.

the instrument

The idea is simple enough. A worker buys a contract that pays out a fixed amount — say $5,000 — if they’re involuntarily laid off within twelve months. The contracts are employer-specific. You’re buying protection against losing this job, at this company. And the price floats based on supply and demand.

You can stack them. Buy one per quarter, and after three years you’re holding twelve active contracts worth $60,000 in total coverage. That’s real money. Enough to cover a mortgage for a year, fund retraining, finance a move.

But here’s the part that matters more than the payout: the price itself is information. The cost of protection at Company X is a live, money-backed read on how likely Company X is to lay people off. It’s a credit rating generated not by an agency with potential conflicts of interest, but by people wagering actual dollars.

who sells these

For every buyer, there’s a seller — someone collecting the premium and agreeing to pay if the layoff happens. Who takes that position?

Start with the people who are already implicitly betting on local employment. A landlord with ten rental units near a plant is already exposed to that plant’s fortunes. Selling protection turns that exposure into premium income while things are good. They’re being compensated for risk they’re already carrying.

Then investors who think a company is more stable than the market believes. If contracts on a solid employer are priced at $150/quarter and you think the layoff probability is negligible, that’s easy money. These participants add liquidity and sharpen the price signal.

The employers themselves could sell too, with one hard constraint: employer-sold contracts must be backed by posted bonds. A company saying “we’re confident enough to sell protection on our own workers” is making a commitment — but only a real one if the money is set aside, because the company is most likely to owe payouts precisely when it’s in financial distress. The size of the bond relative to the workforce becomes visible information. A company that bonds deeply is putting capital behind its retention commitment. One that won’t bond at all is telling the market something important.

And participation isn’t geographically limited. An investor in Toronto can sell protection on Alberta oil workers if they think the price is right. The more geographically diverse the sell side, the more robust the system is against localized shocks — which is exactly when you need it most.

the signal

Right now, a worker at an oil services company in Fort McMurray has no way to gauge the probability of being laid off next year. Their EI premium is the same whether they work for a rock-solid operator or a company running on fumes. There’s no signal until the day they get the call.

Under this system, the price of their contract is the signal. If it’s $50/quarter, the market thinks they’re fine. If it jumps to $200 over three months, something is wrong — and they know it before the pink slips arrive. They can start looking, retrain, build savings, or buy more protection at current prices.

Multiply that by thousands of workers, each making small adjustments based on honest price signals, and you get gradual rebalancing instead of sudden collapse.

It’s not just workers reading these signals, either. A town council watching protection costs spike for the local plant knows it’s time to start diversifying. A new hire choosing between two job offers can compare contract prices as a concrete measure of job quality. “Come work for us — contracts are $30/quarter” is a recruiting pitch backed by market conviction, not just an HR slide deck.

the buyback

When a company lays people off today, it pays severance (maybe) and walks away. The actual devastation — lost spending, mortgage defaults, downstream business failures, food bank lineups — gets externalized. Taxpayers absorb it through EI and social services. The company never sees that cost on its balance sheet.

Under this system, an employer executing layoffs must buy up the outstanding contracts on affected workers. If the company has resources, it buys the contracts from the backers, releasing them from their obligation, then pays out the workers. The workers walk away with a market-priced severance — often far more generous than what the company would have offered on its own.

If the company can’t afford the buyback — distress scenario — the contracts stay live and the backers pay the workers directly. That’s the scenario the backers priced in when they sold the contracts.

Think about what this does to incentives. A company contemplating layoffs now faces a buyback cost proportional to how many workers it has, how long they’ve been stacking, and how risky the market considers the situation. A stable company with long-tenured workers holding cheap contracts faces a modest bill. A volatile company that hired aggressively during a boom and is now contracting faces an enormous one — because the market was pricing in exactly this scenario.

And there’s a subtler dynamic. The buyback creates a negotiation space that doesn’t currently exist. If a company is struggling and contract prices on its workers are climbing, it could start buying contracts gradually on the open market — signalling that restructuring is coming. Workers see their contracts being bought. Some voluntarily leave for better opportunities. The union negotiates a managed downsizing. The adjustment happens gradually instead of all at once on a single terrible Friday.

Alberta 2014

To see how this plays under stress, take the oil crash. Oil dropped from $107 to $30 a barrel between June 2014 and early 2016. Alberta lost roughly 100,000 jobs. Unemployment went from 4.3% to 9.1%. Suicide rates spiked 30%. Food bank usage surged.

Under the current system, none of this was signalled in advance. EI premiums were flat. Workers had no warning. The bust hit like a wall.

Run the counterfactual.

As the global supply glut built through early-to-mid 2014, the price of protection contracts on oil-sector workers would have started climbing — maybe months before oil actually dropped. Sell-side participants reading the global supply data would demand higher premiums. The cost of protection for an oil services worker goes from $50/quarter to $90 to $140 over six months. That’s a visible, public signal — this is getting dangerous — well before OPEC’s November 2014 meeting blew the floor out.

During the crash, companies executing layoffs would face buyback costs. A firm laying off 2,000 workers whose contracts averaged $30,000–$40,000 in stacked coverage faces a $60–80 million bill. Some companies restructure more carefully. Cut 1,200 instead of 2,000. Find other efficiencies. The layoffs still happen, but more slowly and less brutally.

After the crash, laid-off workers holding stacked contracts receive lump-sum payouts of $30,000–$60,000 — not $668/week from EI after weeks of processing, but real money, immediately. Enough to cover a mortgage for a year. Enough to actually retrain. The human devastation — the suicides, the food banks — would be materially reduced.

And the boom itself would have been more disciplined. As oil companies expanded aggressively through 2012–2014, the cost of protection on their workers would have risen, acting as a real-time signal against overexpansion. Workers being recruited to Fort McMurray would have seen the contract prices and thought twice. The market wouldn’t have prevented the boom, but it would have moderated it, and pre-positioned cushions for the correction.

towns as participants

Currently, municipalities compete for employers with tax breaks, free land, and infrastructure giveaways — blind bets on a single company. If the company leaves, the town gets nothing.

Under this system, a town could subsidize protection contracts instead. “Move to Millville — first two years of employment protection fully subsidized.” The subsidy is conditional on the worker actually living there. If the local employer is solid, the contracts are cheap and the program costs very little. If the employer starts looking shaky, rising contract prices tell the town to diversify rather than double down.

Compare that to throwing $50 million in tax breaks at a warehouse and crossing your fingers.

what could go wrong

The honest risks.

Correlated failure. In a deep regional downturn, local backers face payouts when their own income is collapsing. This is why geographically diverse sell-side participation matters — but the market has to be deep enough to handle tail risk.

Moral hazard. A worker holding a large stack might be tempted to engineer their own layoff. Mitigated by the without-cause trigger — getting fired for performance doesn’t pay out — and by the fixed payout structure. It’s a cushion, not a windfall.

Accessibility. Financial instruments can be complex. The system needs to be simple enough for ordinary workers to use, which is why the fixed-duration, fixed-amount design matters. So does a local broker on Main Street who knows the economy and matches buyers and sellers.

Liquidity in small markets. A town with one employer and 200 workers might not generate enough trading volume for meaningful price discovery. This works better in larger, more diverse economies. Starting with a mid-sized regional centre makes more sense than a single-industry hamlet.

Employer resistance to transparency. Companies might not want a public, real-time market signal broadcasting their instability. But companies that resist transparency would carry higher contract prices — which is itself informative.

wages and risk

One implication that surprised me: this could lower wages while increasing worker security.

Right now, wages have to do double duty. They compensate for the work and implicitly for the risk of losing the job. A roughneck on an oil rig isn’t just paid for the labour — they’re paid because the job might vanish when prices drop.

If risk is handled separately through protection contracts, that premium can come out of the wage. A worker might rationally accept $50,000 instead of $60,000 if they’re holding contracts guaranteeing $40,000 of cushion in a worst case. Total cost of employment goes down, actual economic security goes up. Both sides benefit.

And lower marginal labour costs mean hiring in situations where companies currently wouldn’t. A company that’s 70% sure a new position will work out might not hire at $60,000 but would at $50,000. More employment gets created at the margin — not through stimulus, but through better risk allocation.

the real question

This doesn’t require federal legislation. It could start in a single municipality. A fintech company structures and offers the contracts under existing provincial securities regulation. A town partners with them, subsidizing contracts for local workers. Local businesses participate on the sell side. The market starts small, prices form, and information begins to flow.

The real test isn’t whether the theory is elegant. It’s whether the prices that emerge carry real information and whether people act on them. If they do, you’ve built something no amount of rate-setting or fiscal stimulus can replicate: a distributed, self-correcting system that gives every participant — workers, employers, investors, towns — honest, money-backed signals about what’s actually happening. In time to do something about it.

I keep wondering whether anyone’s tried this at any scale. The closest analogues I can find are credit default swaps (which price corporate failure but don’t protect workers) and supplemental unemployment benefit plans (which protect workers but carry no price signal). The gap between those two instruments is exactly the space this fills. Maybe there’s a reason nobody’s combined them. Or maybe nobody’s thought to.