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Effects of Firm Size and Business Cycle on Earning Losses of Displaced Workers

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  • Oliver Ruf
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    Abstract

    This paper analyzes labor market success of workers who are displaced in boom versus recession periods. Moreover, the empirical analysis contrasts workers from small firms and large firms. The idea is that displacement carries no information about workers' productivity in large firms but is a signal of low productivity in small firms. This signal is stronger when the plant closure occurs in a boom period than in a recession period. Results indicate that the (i) state of the business cycle is important for influence the effect of displacement on labor market success and (ii) the effect differs by the size of the firm. In large firms, displaced workers suffer from larger earning losses when displacement occurs in recession compared to boom, the opposite result is found for workers displaced from small firms.

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    Bibliographic Info

    Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 366.

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    Date of creation: Apr 2008
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    Handle: RePEc:zur:iewwpx:366

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    Keywords: Displaced workers; wage losses; business cycle; size of the firm;

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    1. Margolis, D.N., 2000. "Worker Displacement in France," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 2000.03, Université Panthéon-Sorbonne (Paris 1).
    2. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(3), pages 281-302, July.
    3. Guido Schwerdt, 2007. "Labor Turnover before Plant Closure:'Leaving the sinking ship' vs. 'Captain throwing ballast overboard'," Economics Working Papers, European University Institute ECO2007/22, European University Institute.
    4. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(1), pages 115-136, Winter.
    5. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(1), pages 165-88, January.
    6. Jaap H. Abbring & Gerard J. van den Berg & Pieter A. Gautier & A. Gijsbert C. van Lomwel & Jan C. van Ours & Christopher J. Ruhm, 1998. "Displaced Workers in the United States and the Netherlands," Tinbergen Institute Discussion Papers 98-084/3, Tinbergen Institute.
    7. Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," NBER Working Papers 2968, National Bureau of Economic Research, Inc.
    8. Harry Krashinsky, 2002. "Evidence on adverse selection and establishment size in the labor market," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(1), pages 84-96, October.
    9. Daniel S. Hamermesh, 1984. "The Costs of Worker Displacement," NBER Working Papers 1495, National Bureau of Economic Research, Inc.
    10. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 92-11, W.E. Upjohn Institute for Employment Research.
    11. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 319-24, March.
    12. Stefan Bender & Christian Dustmann & David Margolis & Costas Meghir, 1999. "Worker displacement in France and Germany," IFS Working Papers, Institute for Fiscal Studies W99/14, Institute for Fiscal Studies.
    13. Daniel S. Hamermesh, 1987. "What Do We Know About Worker Displacement in the U.S.?," NBER Working Papers 2402, National Bureau of Economic Research, Inc.
    14. Barlevy, Gadi, 2001. "Why Are the Wages of Job Changers So Procyclical?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(4), pages 837-78, October.
    15. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 921-55, November.
    16. Nakamura, Emi, 2008. "Layoffs and lemons over the business cycle," Economics Letters, Elsevier, Elsevier, vol. 99(1), pages 55-58, April.
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