Assessing the Impact of Mass Layoffs on the Labor Market: A Spatial Perspective

This study aims to analyze the short- and long-term impact of mass layoffs in the manufacturing sector on local economies, investigating the heterogeneity of outcomes across Italy’s North-South divide. Our research introduces several innovative elements. First, we identified mass layoffs occurring between 2008 and 2011 using six different data sources, linking them with key socio-economic variables relevant to the study. To this new comprehensive dataset, we applied a recent econometric method based on a nonparametric generalization of the Difference-in-Differences estimator, specifically designed for Time-Series Cross-Sectional data, to accurately estimate causal parameters of interest. The results indicate that such shocks negatively impact employment in the local labor market (LLM) where they occur, with significant regional variation in both impact magnitude and statistical significance. In Northern Italy’s LLMs, the decline in manufacturing employment following the shock is –11% in the first year and reaches –17% after nine years, though long-term effects lack statistical significance. In Central-Southern Italy, mass layoffs have a strong, statistically significant, and persistent negative effect in the long term: employment in the affected sector drops by 26% in the first year, with a continuing decline reaching –32% after nine years. The broader economy appears only marginally affected by these shocks.