How Destructive Is Creative Destruction? Effects of Job Loss on Job Mobility, Withdrawal and Income

Abstract

We analyze short and long‐term effects of worker displacement. Our sample consists of male workers displaced from Norwegian manufacturing plants. We find that displacement increases the probability of leaving the labor force by 31%. The drop‐out rate from the labor force is particularly high in the first years following displacement. The average earnings effects for those who remain in the labor force are moderate, a 3% loss relative to non‐displaced workers after seven years. Splitting displaced workers on within‐ and between‐firm movers, we find that the estimated earnings loss is entirely driven by between‐firm movers who experience a 3.6% loss. Transfers to other plants within multi‐plant firms upon displacement are quite common. Our results support the view that human capital is partly firm specific and partly industry specific. We find no evidence suggesting that human capital is plant specific.

Displacement and household adaptation: insured by the spouse or the state?

“…Furthermore, if we compare the immediate impacts of displacement on employment and annual labour income, we see that the negative short-run effect is much stronger for employment than for labour income. 6 Such a finding is in line with the results obtained by Huttunen et al (2011), who report on displacement results for male workers in the Norwegian manufacturing industry.…”

“…The earnings regression results in Huttunen et al (2011) show negative earnings results that peak at 14,000 NOK. This is 4.8 per cent of the average earnings of the non-displaced workers.…”

“…Displacement affects both the short-and long-term wage and employment prospects of workers (Ruhm 1991;Stevens 1997;Huttunen et al 2011;Eliason and Storrie 2006;Røed and Fevang 2007). However, much less is known about the effect of displacement on the household as a whole.…”

Fear itself: The effects of distressing economic news on birth outcomes

“…2 Displaced workers' long-term earnings losses can range from 10 to 25 percent (Ruhm 1991;Jacobson et al 1993;Couch and Placzek 2010). Recently displaced workers are likely to drop out of the labour force (Huttunen et al 2011) and can experience enormously elevated mortality risk (Sullivan and von Wachter 2009). A parent's job loss can also reduce the health of subsequently born children (Lindo 2011).…”

Are workers more vulnerable in tradable industries?

“…16 E.g. Hijzen et al (2010) and Huttunen et al (2011). 17 To some degree this is an arbitrary definition, but has often been justified as being consistent with the definition in the seminal article by Jacobson et al (1993).…”