Economic Crises and Unemployment Persistence: Analysis of Job Losses During the Finnish Recession of the 1990s

Abstract

This study estimates the effect of job loss for Finnish workers who were displaced during a severe recession in the early 1990s. The setting provides a sample of workers of which over 90% experienced unemployment after losing a job due to plant closure. We use linked employer–employee data to follow these workers up to 16 years after the job loss and to construct a closely matched comparison group of non‐displaced workers. We estimate a more than 58% initial drop in employment and earnings after the job loss. At the end of follow‐up, women's employment and earnings recover fully while men's employment remains 1–5% lower relative to the comparison groups, and men suffer a 5–8% earnings loss. We also find large effects on long‐term unemployment that diminish slowly, and long‐lasting effects on poverty risk.