Governments are often willing to subsidize firms on the verge of bankruptcy. The main economic rationale behind these government interventions is that a plant closure would not only harm the workers employed in that plant, but create a domino effect on the region as a whole, thereby multiplying job losses. Yet, little is known empirically how important these spillover effects are for the regional economy. In this paper, we use administrative data of all workers and firms in Germany to quantify the spillover effects of mass layoffs. For the empirical analysis, we combine a difference-in-differences estimator with an event-study approach. We find sizable and persistent negative spillover effects on the regional economy: regions, and especially firms producing in the same sector as the layoff plant, lose altogether many more jobs than in the initial layoff. In contrast, we find much smaller negative employment effects on workers employed in the region at the time of the mass layoff. These results suggest that mass layoffs entail considerable negative spillovers for the local economy, but less so for the national economy.
(joint work with Christina Gathmann and Ines Helm)
Presented by:
Uta Schoenberg (UCL)
Date & time:
January 25, 2016 4:00 pm - January 25, 2016 5:30 pm
Venue:
2N2.4.16
External seminars home