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How Destructive Is Creative Destruction? The Costs of Worker Displacement

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  • 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.

Suggested Citation

  • Huttunen, Kristiina & Moen, Jarle & Salvanes, Kjell G., 2006. "How Destructive Is Creative Destruction? The Costs of Worker Displacement," IZA Discussion Papers 2316, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2316
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    References listed on IDEAS

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    Cited by:

    1. Henry Ohlsson & Donald Storrie, 2012. "Long-term effects of public policy for displaced workers in Sweden: Shipyard workers in the west and miners in the north," International Journal of Manpower, Emerald Group Publishing, vol. 33(5), pages 514-538, August.
    2. Mari Rege & Torbjørn Skardhamar & Kjetil Telle & Mark Votruba, 2009. "The effect of plant closure on crime," Discussion Papers 593, Statistics Norway, Research Department.
    3. Mari Rege & Kjetil Telle & Mark Votruba, 2012. "Social Interaction Effects in Disability Pension Participation: Evidence from Plant Downsizing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1208-1239, December.
    4. Yolanda Kodrzycki, 2007. "Using unexpected recalls to examine the long-term earnings effects of job displacement," Working Papers 07-2, Federal Reserve Bank of Boston.
    5. Kyyrä, Tomi & Korkeamäki, Ossi, 2008. "A Distributional Analysis of Displacement Costs in an Economic Depression and Recovery," Discussion Papers 465, VATT Institute for Economic Research.
    6. Hvide, Hans K & Östberg, Per, 2014. "Stock investments at work," CEPR Discussion Papers 9837, C.E.P.R. Discussion Papers.
    7. Asgeir Skålholt & Taran Thune, 2014. "Coping with Economic Crises-The Role of Clusters," European Planning Studies, Taylor & Francis Journals, vol. 22(10), pages 1993-2010, October.
    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. Eliason, Marcus, 2011. "Assistant and auxiliary nurses in crisis times: earnings and employment following public sector job loss in the 1990s," Working Paper Series 2011:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. von Greiff, Jenny, 2009. "Displacement and self-employment entry," Labour Economics, Elsevier, vol. 16(5), pages 556-565, October.
    11. Bratberg, Espen & Nilsen, Øivind Anti & Vaage, Kjell, 2008. "Job losses and child outcomes," Labour Economics, Elsevier, vol. 15(4), pages 591-603, August.
    12. Henningsen, Morten, 2008. "Benefit shifting: The case of sickness insurance for the unemployed," Labour Economics, Elsevier, vol. 15(6), pages 1238-1269, December.
    13. Knut Røed & Elisabeth Fevang, 2007. "Organizational Change, Absenteeism, and Welfare Dependency," Journal of Human Resources, University of Wisconsin Press, vol. 42(1).
    14. Morten Henningsen & Torbjørn Hægeland, 2008. "Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms?," Discussion Papers 543, Statistics Norway, Research Department.
    15. Espen Bratberg & Kjell G. Salvanes & Kjell Vaage, 2010. "Has Job Stability Decreased? Population Data from a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(1), pages 163-183, March.
    16. Nykvist, Jenny, 2008. "The Effects of Displacement on Self-employment Survival," Working Paper Series 764, Research Institute of Industrial Economics.

    More about this item

    Keywords

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

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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