The Earnings Cost of Business Closure in the UK
31 Pages Posted: 6 Dec 2005
In this paper we estimate how much it costs workers when their employer goes out of business. We use a large random 1% sample of all employees in the UK over the period 1994-2003, linked to a large panel of UK enterprises. We compare the wages and earnings of workers whose employer disappears with comparable workers whose employer remains in the sample. We use both conventional regression techniques and propensity score matching to control for observable differences between displaced and non-displaced workers. We find that earnings losses are initially large but generally last less than four or five years. Earnings losses are mainly driven by periods of non-employment rather than wage losses for those who are successful in finding work again.
Keywords: Worker displacement, linked employer-employee data, panel data, matching
JEL Classification: J63, J65, C23
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