Study: Earnings declines following job loss in mass layoffs differ between countries in Europe – the impact is smallest in Sweden and Denmark, largest in Italy, Spain and Portugal
Workers in Denmark and Sweden experience the lowest earnings declines following job loss in mass layoffs, while workers in Italy, Spain, and Portugal experience losses three times as high. Labour market policies have the potential to mitigate these differences.
The unequal cost of job loss between countries was the focus of a study by a group of researchers from the University of Copenhagen, Universidad Carlos III de Madrid, Banco de España, the University of Mannheim, VATT Institute for Economic Research and the University of British Columbia. Losing a job entails lasting negative consequences for a worker and the extent of these consequences varies by country. Comparing the cost of job loss in mass layoffs across different countries can shed light on which labour markets function better than others and why.
Large differences in the probability of finding a new job
“The differences in income losses are driven mostly by differences in the probabilities of finding a new job after being laid off,” summarizes senior researcher Stefano Lombardi of VATT research institute for economic research.
Approximately 20% of laid off workers from Spain, Portugal and Italy are unable to find a job five years after being laid off, while only 5% of workers in Sweden and Denmark and 10% in France and Austria face the same fate. Differences in wages are less dispersed and clustered between 5% and 10% five years after job loss for most countries.
Danish and Swedish workers experience the lowest earnings losses
Northern European workers from Denmark and Sweden experience by far the lowest earnings losses in the sample: five years after job loss, earnings are about 10% lower than before the mass layoffs. By contrast, the earnings drop of laid off workers from Italy, Portugal, and Spain is about 30%. Austrian workers experience earnings losses in between those of the Scandinavian and Southern European countries, while French workers experience losses similar to those of Scandinavian workers.
“Interestingly, 50-90% of wage declines across countries are explained by workers moving to lower paying firms,” says Lombardi.
Active labour market policies can lower earnings losses
In countries that use more active labour market policies, like training policies, the data shows that earnings losses three years after job loss are lower. This result is robust even when controlling for a wide range of worker-level demographic and labour market characteristics, employer features and calendar time trends. Furthermore, the results are robust across and within countries. By contrast, none of the other labour market institutions analyzed in the study such as total spending in labour market policies, employment protection or union coverage appears to be robustly predictive of the persistent earnings drop that follows job loss.
The differing job loss effects observed across the European countries are also not driven by cross-country differences in gender, job tenure, age, the unemployment rate, year of job loss, or other worker-level or previous employer characteristics.
Working paper available for media
The research team (Antoine Bertheau, Edoardo Maria Acabbi, Cristina Barcelo, Andreas Gulyas, Stefano Lombardi and Raffaele Saggio) analyzed a harmonized dataset that combines administrative records from the following seven countries that are characterized by diverse labour market institutions: Austria, Denmark, France, Italy, Portugal, Spain, and Sweden. The researchers analyzed the labour market outcomes of workers fired due to collective dismissals or firm closures for each country in the sample. They compared their labour market outcomes with those of workers who are similar along key observable dimensions but who did not lose their jobs during a mass layoff in the same period.
Link to the paper: The Unequal cost of Job Loss Across Countries
For more information:
Senior Researcher Stefano Lombardi / VATT ([email protected] ja puh. +358 295 519 512)