Industry shutdown rates and permanent layoffs: evidence from firm-worker matched data

Abstract

Firm shutdown creates a turbulent situation for workers as it leads directly to layoffs for its workers. An additional consideration is whether a firm's shutdown within an industry creates turbulence for workers at other continuing firms. Using data drawn from the Longitudinal Worker File, a Canadian firm-worker matched employment database, we investigate the impact of industry shutdown rates on workers at continuing firm. This paper exploits variation in shutdown rates across industries and within an industry over time to explain the rate of permanent layoffs and the growth of workers' earnings. We find an increase in industry shutdown rates increases the probability of permanent layoffs and decreases earnings growth for workers at continuing firms. JEL Classification: J24, J31, J63, C35

Structural adjustment, mass lay-offs and employment reallocation

“…Some recent academic research suggests that the majority of workers affected by MLs are able to find re-employment, normally in the same sectore.g. (Oesch and Baumann, 2015 [12]; Huttunen, Møen and Salvanes, 2011 [13]; Hane-Weijman, Eriksson and Henning, 2018 [14]). One explanation might reside on the perception of future employers with regard to the worker's ability.…”

“…Individual lay-offs might have a signalling effect about the ability of the individual workers, whereas the motives for the lay-off of a worker affected by a ML are not necessarily related to the ability of the individual worker but rather to the context of the firm or the sector. Older workers and those with lower levels of education are more likely to leave the work force or face long-term unemployment after a ML event (Oesch and Baumann, 2015 [12]; Huttunen, Møen and Salvanes, 2011 [13]).…”

“…Analysis by Huttunen, Møen and Salvanes (2011 [13]) using Norwegian data indicates that re-employment is more likely in the same industry and notably in a different plant belonging to the same multi-plant firm (within firm reallocation). 9 Even though displacement is found to increase the probability of leaving the labour force by 31%, for those that remain the impact of displacement on earnings is relatively moderate but nonnegligibleabout 3% lower than non-displaced workers, after seven years.…”

Labour market effects of job displacement for prime-age and older workers

“…Besides this restriction, both displaced and controls are subject to the same labour market risks, such as dismissals on individuals grounds, mass layoffs and future firm closures, voluntary quits or job mobility. Quintin and Stevens (2005) and Huynh et al (2017) have shown that industry shutdown rates may negatively impact workers experiencing a layoff at continuing firms. Industry level stress flows down to firms and workers within the industry, which may lead to controls being affected by the displacement of the treated.…”

Productivity and Efficiency Analysis

“…, Â tIL provides information about the evolution of the main differences and similarities between the underlying distributions. For other applications of FPCA in firm dynamics we refer the reader to Huynh and Jacho-Chávez (2010), Huynh et al (2011), andHuynh et al (2015).…”