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Coping with creative destruction: Reducing the costs of firm exit

Author

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  • Dan Andrews
  • Alessandro Saia

Abstract

A policy framework that does not unduly inhibit the creative destruction process is vital to sustaining productivity growth. Yet, a key question is what happens to workers who lose their jobs due to this process and what are the policies that minimise the costs of worker displacement? Accordingly, this paper exploits a retrospective panel of workers in 13 European countries over the period 1986-2008 to explore the factors which shape the re-employment prospects of workers displaced due to firm exit. The results suggest that higher spending on active labour market policies (ALMPs), financed through an offsetting reduction in spending on passive measures, can aid the re-employment prospects of displaced workers. There may also be a case to better tailor ALMPs to workers displaced by firm exit to the extent that the re-employment probabilities of this group of workers are more sensitive to ALMPs than workers that are displaced for other involuntary reasons. The effectiveness of ALMPs is also enhanced by lower entry barriers in product markets and higher public sector efficiency, while reductions in the labour tax wedge can aid the re-employment prospects of displaced workers. Finally, regional mobility emerges as a key channel through which workers who lose their job due to plant closure become re-employed, suggesting that housing market policies may also be relevant. Accompagner la destruction créatrice : Réduire les coûts liés aux fermetures d'entreprises. Un cadre politique qui n’entrave pas indûment le processus de destruction créatrice est indispensable pour soutenir la croissance de la productivité. Cependant, une question cruciale est de savoir ce qu’il advient aux employés qui perdent leur emploi à cause de ce processus, et quelles sont les politiques qui minimisent les coûts des déplacements de main-d'oeuvre. En conséquent ce papier explore, sur la base d’un panel rétrospectif de travailleurs de 13 pays européens sur la période 1986-2008, les facteurs qui déterminent la ré-employabilité des travailleurs ayant perdu leur emploi en raison d’une fermeture d’entreprise. Les résultats suggèrent que des dépenses plus importantes sur les politiques actives du marché du travail (PAMT), financées par une réduction concomitante des dépenses sur les politiques passives, peut améliorer les possibilités de ré-emploi des travailleurs déplacés. Il peut également être bénéfique de mieux cibler les PAMT sur les travailleurs déplacés en raison d’une fermeture d’entreprise, dans la mesure où les probabilités de ré-emploi sont plus sensibles aux PAMT pour ce groupe de travailleurs que pour les travailleurs ayant perdu leur emploi pour d’autres raisons involontaires. L’efficacité des PAMT est également renforcée par la baisse des barrières à l’entrée et par une plus grande efficacité du secteur public, alors que l’allégement du coin fiscal sur le travail peut aider les chances de ré-emploi des travailleurs déplacés. Enfin, la mobilité régionale émerge comme un moyen important par lequel les travailleurs qui perdent leur emploi en raison d’une fermeture d’entreprise peuvent retrouver un emploi, ce qui suggère que les politiques du logement peuvent également être pertinentes.

Suggested Citation

  • Dan Andrews & Alessandro Saia, 2017. "Coping with creative destruction: Reducing the costs of firm exit," OECD Economics Department Working Papers 1353, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1353-en
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    File URL: http://dx.doi.org/10.1787/bbb44644-en
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    Cited by:

    1. Christian Osterhold & Ana Fontoura Gouveia, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    job displacement; labour market policies; layoffs;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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