From distress to recovery - An analysis of involuntary job loss in the Swedish manufacturing industry

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: With growing disruptive forces affecting employment levels, it is essential to examine the impact of involuntary job loss, also known as job displacement. The purpose of this study is therefore to analyse costs of job displacement incurred by displaced workers. Using longitudinal administrative data, we follow Swedish manufacturing workers from plants experiencing mass layoffs or closures for an 11-year period. This allows us to gauge the effect of job displacement on annual earnings and employment status. Through three reduced form regressions we estimate the difference between displaced workers and a control group of workers surviving mass layoffs. To our knowledge, this comparison approach has not yet been evaluated in previous research. The results indicate that displaced workers experience short-term losses in both earnings and probability of finding employment. Furthermore, an extensive heterogeneity analysis shows that low-educated as well as old, high-tenured workers are particularly vulnerable. In comparison to literature examining other countries, the negative effects appear to be moderate and workers seem to experience a relatively fast recovery, thereby indicating that the Swedish labour market is well-functioning in protecting workers facing involuntary job loss.

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