Are Displaced Manufacturing Workers Unemployable? An Analysis of Sectorally Based Adjustment Costs in France

Abstract

Despite the richness of the literature on the adjustment costs of displaced workers, the impact of the former sector of employment on a displaced worker's jobless durations has received little attention. This is curious given the policy responses in several countries. Although the literature indicates the importance of individual characteristics, such as educational attainment and demographic traits, a non-trivial portion of government assistance is based on a collective attribute of the affected workforces, namely the sector in which they formerly worked. Governments often target assistance to specific sectors in the forms of operating subsidies, financial 'bailout' packages, and trade protection. Examples include steelworkers and shipyard workers in France, coal miners in the United Kingdom, and fishery and shipyard workers in Canada. Gray (1995) demonstrates that taxpayer funded early retirement benefits in France are heavily weighted toward workers in manufacturing industries. In Canada, similar benefits are currently being received by the early retirees of Algoma Steel, and the steelworkers' union has requested a package for older, laid off Stelco employees. The rationale commonly given by government officials and workers' unions is that workers in the affected sectors have virtually no alternative employment opportunities. Possible reasons for the perception that workers displaced from certain sectors have low re-employment probabilities have received little attention in the economics literature. The thrust of the conjecture posited by policy makers in France is that there is an ethos, described in Houseman (1988), according to which workers in sectors such as heavy manufacturing are covered by an implicit contract which has conditioned them to expect guaranteed permanent employment. The organizational characteristics of the internal labour market cause them to lack the cognitive skills required to