Big plant closures and local employment

Jordi Jofre-Monseny,Maria Sánchez-Vidal,Elisabet Viladecans-Marsal

doi:10.1093/jeg/lbx026

Jordi Jofre-Monseny, Maria Sánchez-Vidal + Show 1 more

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https://doi.org/10.1093/jeg/lbx026

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Abstract

This paper estimates the impact of large plant closures on the local employment in the affected industry. Specifically, we examine the closure of 45 large manufacturing plants in Spain which relocated abroad between 2001 and 2006. We run differences-in-differences specifications in which locations that experience a closure are matched to locations with similar pre-treatment employment levels and trends. The results show that when a plant closes, for each job directly lost in the plant closure, only between 0.6 and 0.7 jobs are actually lost in the local affected industry. These effects are driven by employment expansions in local incumbent firms and, to a lesser extent, by the creation of new firms in the local industry.

Highlights

Local and regional governments around the world provide large plants with generous subsidies, often in the form of tax breaks
We use differences-in-differences specifications to estimate the effects of big plant closures on local employment
Local employment effects in the industry affected by the plant closure we seek to estimate the impact of a plant closure on the employment in the industry suffering that closure

Summary

Introduction

Local and regional governments around the world provide large plants with generous subsidies, often in the form of tax breaks. According to the New York Times, each year US local and State governments spend more than $80 billion on incentives targeted to individual firms. Subsidies are frequently offered to attract new plants. Once a plant is operational, subsidies to avoid its relocation (or that of some of its activities) are common. The $8.7 billion tax break that Boeing was recently offered to produce a new jet in Seattle is the largest incentive received by an individual firm in US history. In Spain, the Seat and Ford plants in Barcelona and Valencia have regularly held regional governments to ‘ransom’ under the threat of relocating production

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