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How destructive is creative destruction? : the costs of worker displacement

Huttunen, Kristiina; Møen, Jarle; Salvanes, Kjell Gunnar
Working paper
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URI
http://hdl.handle.net/11250/162686
Date
2006-03
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  • Discussion papers (SAM) [607]
Abstract
We analyze the long-term effects of worker displacement using a large

administrative matched employer–employee database spanning throughout the entire Norwegian

economy. Our focus is on prime-age male manufacturing sector workers displaced

due to plant closure or significant downsizing of the plant. The data follows these workers

within the Norwegian economy up to seven years after displacement. We demonstrate that

displacement significantly increases the probability of exiting the labor force. Workers who

remain in the labor force suffer long-lasting negative earning losses. The magnitude of this

loss, which peaks at 5 percent two years after displacement, is clearly smaller than what is

found for the US. Older workers, workers with low education levels and workers displaced

from small plants are more vulnerable than other groups. Twenty percent of the displaced

workers find a new job in a sister plant within the same firm. In the long run, 35 percent of

the displaced workers change industry, as compared to 17 percent of nondisplaced workers.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2006:11

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