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How Destructive Is Creative Destruction? The Costs of Worker Displacement

  • Huttunen, Kristiina


    (Aalto University)

  • Moen, Jarle


    (Norwegian School of Economics)

  • Salvanes, Kjell G.


    (Norwegian School of Economics)

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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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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  28. repec:hal:journl:halshs-00354397 is not listed on IDEAS
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