Losing standard employment in Germany: The consequences of displacement and dismissal for workers’ subsequent careers

Abstract

This study examines the effects of job loss on workers’ subsequent careers in Germany. To provide a comprehensive picture, I distinguish between displacement due to plant closure and dismissal and simultaneously analyze the effects on workers’ subsequent labor market statuses, labor incomes, and non-standard employment risks. The results show that both events have lasting negative effects. Five years after job loss, displaced and dismissed workers have 12 and 15 percentage point lower employment chances respectively. Although this is mostly explained by higher unemployment risks, more than a third is due to displaced and dismissed workers leaving the labor force entirely, especially via (early) retirement. Moreover, I find large short-term total labor income losses which are mainly explained by lower employment chances and reduced working hours but falls in hourly wages become relatively more important as time passes. Five years after job loss, the negative effects on hourly wages still amount to 6 percent for displaced workers and 8 percent for workers who were dismissed. With respect to non-standard employment, I show that both displacement and dismissal increase the risks of self-employment, part-time employment, and temporary employment with only the latter being transitional in nature.