Labor Turnover Before Plant Closure: 'Leaving the Sinking Ship' vs. 'Captain Throwing Ballast Overboard'

50 Pages Posted: 19 Mar 2008

See all articles by Guido Schwerdt

Guido Schwerdt

University of Konstanz - Faculty of Economics and Statistics

Date Written: March 2008

Abstract

Involuntary job loss in administrative data is commonly identified by focusing on mass-layoffs or plant closures. However, such events usually do not happen without prior knowledge, which potentially leads to selection in the labor turnover of distressed firms. We find that workers separating from closing plants up to 2 quarters before closure are associated with significantly lower displacement costs and on average significantly higher pre-closure earnings levels as opposed to ultimately displaced workers. Furthermore, our results indicate that displaced workers with high pre-closure earnings experience significantly lower reductions in future employment probabilities. These findings suggest that compositional differences cause estimated displacement costs to differ between early leavers and ultimately displaced workers. Focusing exclusively on the latter group would lead to a serious overestimation of displacement costs.

Keywords: plant closure, labor turnover, exact-matching, employer-employee data

JEL Classification: J63, J65, C21, C23

Suggested Citation

Schwerdt, Guido, Labor Turnover Before Plant Closure: 'Leaving the Sinking Ship' vs. 'Captain Throwing Ballast Overboard' (March 2008). CESifo Working Paper Series No. 2252, Available at SSRN: https://ssrn.com/abstract=1107781 or http://dx.doi.org/10.2139/ssrn.1107781

Guido Schwerdt (Contact Author)

University of Konstanz - Faculty of Economics and Statistics ( email )

Universitaetsstr. 10
78457 Konstanz
Germany

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