Labor market networks and recovery from mass layoffs: Evidence from the Great Recession period

Abstract

We measure the changing efficacy of neighborhood-based labor market networks, across the business cycle, in helping displaced workers become re-employed, focusing on the periods before, during, and just after the Great Recession. Networks can only be effective when hiring is occurring, and hiring varied greatly between 2005 and 2012, the period we study. We therefore focus on a measure of the strength of the labor market networks that includes not only the number of employed neighbors of a laid off worker, but also the gross hiring rate at that person's neighbors’ workplaces. Our evidence indicates that local labor market networks increase re-employment following mass layoffs, and in particular, that networks serve to markedly increase the probability of re-employment specifically at neighbors’ employers. This is especially true for low-earning workers. Moreover, although hiring and employment rates decreased during the Great Recession period, the productivity of labor market networks in helping to secure re-employment for laid off workers was remarkably stable during our sample period.