Reemployment or Unemployment

Abstract

Previous research on displaced workers' labor market prospects shows that workers with a higher educational level are substantially more likely to return to employment than low-educated workers. There seem to be two main reasons for this finding. First, the demand for high-skilled labor is rising as a consequence of the automation of production processes and technological change that is skill-biased in favor of highly educated workers. Second, education is an important signal to employers about workers' unobserved abilities such as their ability to learn. We therefore hypothesize that low-and mid-educated workers encounter more difficulties in finding a job than highly educated workers (hypothesis H1, see Sect. 1.4).With respect to reemployment after job loss, studies also show that older workers experience much greater difficulties in returning to the active labor force than younger workers. This phenomenon may be due to older workers' longer firm tenure which goes along with a skills profile that contains a large amount of firmspecific skills not readily transferable to a new firm. Accordingly, we expect older workers to have more difficulty in returning to the active labor force than younger workers (hypothesis H1).We begin our empirical analysis with the question whether displaced workers managed to return to the active labor force within the time that passed between their job loss and our survey. We assess this question based on our combined data and then compare the finding with the counterfactual outcome of a control group of nondisplaced workers. We then identify the socio-demographic and contextual factors that potentially favor or inhibit workers' reemployment and discuss how this result compares with findings from earlier studies and different contexts. We conclude by discussing the implications of our results for our hypotheses.