Abstract
ABSTRACTThis article analyzes the development of employment levels and worker flows before bankruptcies, plant closure without bankruptcies and mass layoffs. Utilizing administrative plant-level data for Germany, we find no systematic employment reductions prior to mass layoffs, a strong and long-lasting reduction prior to closures, and a much shorter shadow of death preceding bankruptcies. Employment reductions in closing plants, in contrast to bankruptcies and mass layoffs, do not come along with increased worker flows. These patterns point to an intended and controlled shrinking strategy for closures without bankruptcy and to an unintended collapse for bankruptcies and mass layoffs.
Highlights
This paper analyzes firms' employment patterns prior to collective job displacement events, i.e. mass layoffs and firm exits with and without bankruptcy, in order to assess whether these events occur suddenly and unexpectedly or whether one can observe employment developments that point to an upcoming displacement event
The mere existence of a shadow of death challenges a crucial assumption made in the displacement literature. It puts into question whether becoming displaced is really outside of the worker’s individual control. When it comes to the discussion about whether mass layoffs or plant closures are the better proxy for unexpected and exogenous job loss, it is sometimes argued that using plant closures avoids within plant selectivity but comes with the disadvantage of looking mostly at workers displaced from small plants
Our main insights are unchanged if we replicate our analyses for plants with the last pre-event observation in 2008.14 We study the employment patterns during the last five years before the displacement event, i.e., we restrict our analysis to plants that are at least five years old in 2007 and already existed in
Summary
This paper analyzes firms' employment patterns prior to collective job displacement events, i.e. mass layoffs and firm exits with and without bankruptcy, in order to assess whether these events occur suddenly and unexpectedly or whether one can observe employment developments that point to an upcoming displacement event. Mass layoffs and plant closures are the two events typically considered but the choice of the appropriate displacement event and measurement problems associated with it are disputed questions since it is not fully understood what kind of selectivity processes are at work (von Wachter 2010:95). This points to an intended and controlled shrinking strategy for closures without bankruptcy and to an unintended collapse for bankruptcies trying to keep a certain level of economic activity as long as possible compensating their higher level of separations by new hires We utilize these results to discuss the appropriateness of the three layoff events to serve as a proxy for unanticipated job loss. Our results have implications for the analysis of post-displacement outcomes (Jacobsen et al 1993) and studies using displacements as proxies for exogenous career interruptions to identify, e.g., returns to human capital components (Dustmann and Meghir 2005), fertility decisions (Del Bono et al 2012), or intergenerational aspects of displacements (Oreopoulos et al 2008)
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