The toll of change: Economic restructuring, worker displacement, and unemployment in West Germany

In our era of "shareholder value", news of redundancies in leading global companies is good news for the stock market. The coincidence of this kind of news with growing unemployment creates the impression of a direct and simple relationship between the two developments. In this paper, we use official data on employment and unemployment and exploit a number of surveys of establishments, individuals and, more specifically, unemployed persons in order to point out several paradoxes. We find that dismissals for economic reasons account for only a fairly small share of separations. Furthermore, the contracting sectors produce less job destruction, have less labour turnover, make less use of dismissals and produce below-average unemployment inflows. We find also that among samples of unemployed persons the percentage of those who lost their last job due to a dismissal for economic reasons is rather high. We do not know, however, from which sectors these unemployed originated. From an analytical perspective, it must be concluded that the mechanisms by which structural change produces unemployment are still rather obscure. Event history analysis based on data sets of individuals is needed to shed more light on the unemployment process. From a policy perspective, however, the principal recommendation is that efforts should be concentrated on facilitating the re-employment process rather than slowing down the process of change.