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How Destructive Is Creative Destruction? The Costs of Worker Displacement

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Author Info

  • Huttunen, Kristiina

    ()
    (Aalto University)

  • Moen, Jarle

    ()
    (Norwegian School of Economics)

  • Salvanes, Kjell G.

    ()
    (Norwegian School of Economics)

Abstract

We analyze short and long-term effects of worker displacement. Our focus is on prime-age male workers displaced from Norwegian manufacturing plants. We find that displacement increases the probability of exiting the labor force by about 5 percentage points. This indicates that studies using data that do not incorporate workers leaving the labor force, may strongly underestimate the costs of displacement. The most productive workers are recalled, transferred to a different plant within the firm, or they move to the private sector. The least productive re-employed workers move to the public sector. Generally, the earnings effects are weak. When controlling for worker fixed effects, we find that all workers suffer some short-term losses, even those re-employed within the same firm, but the only workers that seem to suffer a permanent earnings loss are the few who move to the public sector.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2316.

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Length: 42 pages
Date of creation: Sep 2006
Date of revision:
Publication status: published as 'How Destructive is Creative Destruction? Effects of Job Loss on Job Mobility, Withdrawal and Income' in: Journal of the European Economic Association, 2011, 9 (5), 840 - 870
Handle: RePEc:iza:izadps:dp2316

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Keywords: matched employer-employee data; permanent job-loss; Norway; displaced workers; reemployment;

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References

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  1. Gibbons, R. & Katz, L.F., 1989. "Layoffs And Lemons," Working papers 531, Massachusetts Institute of Technology (MIT), Department of Economics.
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Citations

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Cited by:
  1. Nykvist, Jenny, 2008. "The Effects of Displacement on Self-employment Survival," Working Paper Series 764, Research Institute of Industrial Economics.
  2. Mari Rege & Torbjørn Skardhamar & Kjetil Telle & Mark Votruba, 2009. "The effect of plant closure on crime," Discussion Papers 593, Research Department of Statistics Norway.
  3. Henningsen, Morten, 2008. "Benefit shifting: The case of sickness insurance for the unemployed," Labour Economics, Elsevier, vol. 15(6), pages 1238-1269, December.
  4. Rege, Mari & Telle, Kjetil & Votruba, Mark, 2009. "Social Interaction Effects in Disability Pension Participation: Evidence from Plant Downsizing," UiS Working Papers in Economics and Finance 2009/30, University of Stavanger.
  5. Bratberg, Espen & Nilsen, Øivind Anti & Vaage, Kjell, 2007. "Job losses and child outcomes," Working Papers in Economics 07/07, University of Bergen, Department of Economics.
  6. Yolanda K. Kodrzycki, 2007. "Using unexpected recalls to examine the long-term earnings effects of job displacement," Working Papers 07-2, Federal Reserve Bank of Boston.
  7. Røed, Knut & Fevang, Elisabeth, 2005. "Organisational Change, Absenteeism and Welfare Dependency," Memorandum 20/2005, Oslo University, Department of Economics.
  8. Verho, Jouko, 2008. "Scars of recession: the long-term costs of the Finnish economic crisis," Working Paper Series 2008:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  9. Ohlsson, Henry & Storrie, Donald, 2007. "Long term effects of public policy for displaced workers in Sweden – shipyard workers in the West and miners in the North," Working Paper Series 2007:19, Uppsala University, Department of Economics.
  10. von Greiff, Jenny, 2009. "Displacement and self-employment entry," Labour Economics, Elsevier, vol. 16(5), pages 556-565, October.
  11. Ossi Korkeamäki & Tomi Kyyrä, 2008. "A Distributional Analysis of Displacement Costs in an Economic Depression and Recovery," Discussion Papers 465, Government Institute for Economic Research Finland (VATT).
  12. Morten Henningsen & Torbjørn Hægeland, 2008. "Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms?," Discussion Papers 543, Research Department of Statistics Norway.

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