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Spillover Effects in Local Labor Markets: Evidence from Mass Layoffs

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  • Gathmann, Christina
  • Helm, Ines
  • Schönberg, Uta

Abstract

Governments are often willing to subsidize firms on the verge of bankruptcy. The main economic rationale behind these interventions is that a plant closure would not only harm the workers employed in that plant, but create a domino effect on the regional economy as a whole. Yet, little is still known empirically how important these spillover effects are for economic development in the region. In this paper, we use administrative data of all workers and firms in Germany to quantify the spillover effects of mass layoffs. For the empirical analysis, we combine a difference-in-differences estimator with an event-study approach. We find sizeable negative spillover effects on the regional economy: regions, and especially firms producing in the same sector as the firm hit by a mass layoff, lose many more jobs than in the initial layoff. In contrast, we find few negative effects for workers employed (but not directly affected by the layoff) in the region. As such, mass layoffs seem to have negative spillovers locally, but not nationally.

Suggested Citation

  • Gathmann, Christina & Helm, Ines & Schönberg, Uta, 2014. "Spillover Effects in Local Labor Markets: Evidence from Mass Layoffs," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100378, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100378
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    References listed on IDEAS

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    Cited by:

    1. Frank Neffke & Anne Otto & César Hidalgo, 2016. "The mobility of displaced workers: How the local industry mix affects job search strategies," Papers in Evolutionary Economic Geography (PEEG) 1605, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Mar 2016.

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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