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How Destructive Is Creative Destruction? The Costs of Worker Displacement

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Author Info
Kristiina Huttunen () (Uppsala University)
Jarle Møen () (Norwegian School of Economics and Statistics Norway)
Kjell G. Salvanes () (Norwegian School of Economics, Statistics Norway and IZA Bonn)

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Abstract

We analyze short and long-term effects of worker displacement. Our focus is on prime-age male workers displaced from Norwegian manufacturing plants. We find that displacement increases the probability of exiting the labor force by about 5 percentage points. This indicates that studies using data that do not incorporate workers leaving the labor force, may strongly underestimate the costs of displacement. The most productive workers are recalled, transferred to a different plant within the firm, or they move to the private sector. The least productive re-employed workers move to the public sector. Generally, the earnings effects are weak. When controlling for worker fixed effects, we find that all workers suffer some short-term losses, even those re-employed within the same firm, but the only workers that seem to suffer a permanent earnings loss are the few who move to the public sector.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2316.

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Length: 42 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2316

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Related research
Keywords: displaced workers; permanent job-loss; reemployment; matched employeremployee data; Norway;

Other versions of this item:

Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Holden, S., 1998. "Wage Drift and the Relevance of Centralised Wage Setting," Memorandum 04/1998, Oslo University, Department of Economics.
    Other versions:
  2. Ruhm, Christopher J, 1991. "Displacement Induced Joblessness," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 517-22, August. [Downloadable!] (restricted)
  3. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January. [Downloadable!] (restricted)
  4. Mari Rege, Kjetil Telle and Mark Votruba, 2005. "The Effect of Plant Downsizing on Disability Pension Utilization," Discussion Papers 435, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  5. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October. [Downloadable!] (restricted)
    Other versions:
  6. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March. [Downloadable!] (restricted)
  7. Kletzer, Lori G, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-36, Winter. [Downloadable!] (restricted)
  8. Anabela Carneiro & Pedro Portugal, 2006. "Wages and the Risk of Displacement," IZA Discussion Papers 1926, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Kjell G. Salvanes & Svein Erik F¯rre, 2003. "Effects on Employment of Trade and Technical Change: Evidence from Norway," Economica, London School of Economics and Political Science, vol. 70(278), pages 293-329, 05. [Downloadable!] (restricted)
  10. Audra Bowlus & Lars Vilhuber, 2002. "Displaced workers, early leavers, and re-employment wages," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C1-1, International Conferences on Panel Data. [Downloadable!]
    Other versions:
  11. Paul A. Lengermann, 2002. "Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality," Technical Papers 2002-10, Longitudinal Employer-Household Dynamics, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  12. Bruce C. Fallick, 1996. "A review of the recent empirical literature on displaced workers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 50(1), pages 5-16, October.
  13. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
    Other versions:
  14. Lori G. Kletzer & Robert W. Fairlie, 2003. "The long-term costs of job displacement for young adult workers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 56(4), pages 682-698, July. [Downloadable!] (restricted)
  15. Chan, Sewin & Stevens, Ann Huff, 2001. "Job Loss and Employment Patterns of Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 484-521, April. [Downloadable!] (restricted)
  16. Hamermesh, Daniel S, 1987. "The Costs of Worker Displacement," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 51-75, February. [Downloadable!] (restricted)
    Other versions:
  17. Daniel S. Hamermesh, 1987. "What Do We Know About Worker Displacement in the U.S.?," NBER Working Papers 2402, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Pfann, Gerard A. & Hamermesh, Daniel, 2001. "Two-Sided Learning, Labor Turnover and Worker Displacement," IZA Discussion Papers 308, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  19. Burda, Michael C & Mertens, Antje, 1998. "Wages and Worker Displacement in Germany," CEPR Discussion Papers 1869, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  20. Eliason, Marcus & Storrie, Donald, 2004. "The Echo of Job Displacement," Working Papers in Economics 135, Göteborg University, Department of Economics. [Downloadable!]
    Other versions:
  21. Bruce C. Fallick, 1995. "A review of the recent empirical literature on displaced workers," Finance and Economics Discussion Series 95-14, Board of Governors of the Federal Reserve System (U.S.).
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yolanda K. Kodrzycki, 2007. "Using unexpected recalls to examine the long-term earnings effects of job displacement," Working Papers 07-2, Federal Reserve Bank of Boston. [Downloadable!]
  2. Mari Rege, Torbjørn Skardhamar, Kjetil Telle and Mark Votruba, 2009. "The effect of plant closure on crime," Discussion Papers 593, Research Department of Statistics Norway. [Downloadable!]
  3. Verho, Jouko, 2008. "Scars of recession: the long-term costs of the Finnish economic crisis," Working Paper Series 2008:9, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  4. Espen Bratberg & Øivind Anti Nilsen & Kjell Vaage, 2007. "Job Losses and Child Outcomes," IZA Discussion Papers 2895, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Mari Rege, Kjetil Telle and Mark Votruba, 2007. "Social Interaction Effects in Disability Pension Participation. Evidence from Plant Downsizing," Discussion Papers 496, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  6. Morten Henningsen and Torbjørn Hægeland, 2008. "Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms?," Discussion Papers 543, Research Department of Statistics Norway. [Downloadable!]
  7. Ohlsson, Henry & Storrie, Donald, 2007. "Long term effects of public policy for displaced workers in Sweden – shipyard workers in the West and miners in the North," Working Paper Series 2007:19, Uppsala University, Department of Economics. [Downloadable!]
  8. Røed, Knut & Fevang, Elisabeth, 2005. "Organisational Change, Absenteeism and Welfare Dependency," Memorandum 20/2005, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
  9. Nykvist, Jenny, 2008. "The Effects of Displacement on Self-employment Survival," Working Paper Series 764, Research Institute of Industrial Economics. [Downloadable!]
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