Job loss. Consequences and labor market policy

Abstract

Cederlöf, J. 2020. Job Loss: Consequences and Labor Market Policy. Economic studies 184. 213 pp. Uppsala: Department of Economics, Uppsala University. ISBN 978-91-506-2818-0.

Essay I: This paper takes a novel approach to estimating the effects of involuntary job loss on future earnings, wages and employment. Whereas the previous literature has relied on mass layoffs and plant closures for exogenous variation in displacement, I use the fact that who is laid off is often determined by a seniority rule, specifically the last-in-first-out (LIFO) rule. This feature enables me to study also smaller sized layoffs affecting a broader set of workers. Using matched employer-employee data from Sweden, in combination with detailed individual level data on layoff notifications, I rank workers according to relative seniority and identify establishment/occupation specific discontinuities in the probability of displacement which I exploit in a regression discontinuity framework. I find that displaced workers on average suffer large initial earnings losses of about 38 percent, but in contrast to previous studies, earnings recover fully within 7 years. I then exploit the heterogeneity across layoffs to examine when, and under what circumstances, the cost of displacement are most persistent. I show that persistent earnings losses are mainly associated with very large layoff events and that a substantive share of these losses are attributable to general equilibrium effects.

Essay II: Layoff rules are often criticized for creating an inefficient allocation of labor. However, such rules also provide insurance for workers. This paper examines the effects of advance notice of job loss for workers. Empirically, we use unique administrative data from Sweden on the exact dates of layoff notification as well as contracted notice periods, all at the individual level. Discontinuities in notificationtimes generated by collective bargaining agreements provide exogenous variation. Our regression-discontinuity estimates indicate that longer notice periods reduce the probability of non-employment and increase annual earnings during the first year after layoff notification. Workers who get longer notification periods experience smaller falls in their reemployment wages. We also show that firms make – and workers accept – severance payments in order to reduce the notice period. Workerswho are eligible for higher UI get lower severance payments.

Essay III: This paper studies which features of a caseworker that are important for job seeker outcomes, caseworker value-added and to what extent job seeker-caseworker matching matter. To break non-random sorting of job seekers to caseworkers we exploit that many local employment offices in Sweden assign job seekers to caseworkers based on date-of-birth. This as-if random allocation is coupled with detailed data on caseworkers. Our findings shows that female caseworkers perform better than male caseworker, in particular when they are paired with female job seekers. We also see that caseworkers with higher wages perform better. Many other observed caseworker characteristics, such as cognitive ability, personal experience of unemployment and educational background, are not related to caseworker performance. Based on the actions taken by the caseworkers, we find that caseworkers who have a preference for meetings are more successful. We also find that caseworkers who share the same labor market experience or educational level as the job seeker are more successful in mediating jobs to the unemployed. Finally, we document large and important differences in overall caseworker valueadded. Essay III has been published by IFAU as working paper 2021:9 and Swedish report 2021:13

Essay IV: Previous studies estimating the effect of generosity of unemployment insurance (UI) on unemployment duration has found that as job-seekers approach benefit exhaustion the probability of leaving unemployment increases sharply. Such "spikes" in the hazard rate has generally been interpreted as job-seekers timing their employment to coincide with benefit exhaustion. Card, Chetty and Weber (2007b) argue that such spikes rather reflect flight out of the labor force as benefits run out. This paper revisits this debate by studying a 30 week UI benefit extension in Sweden and its effects on unemployment duration, duration on UI, as well as the timing of employment As the UI extension is predicated upon a job-seeker having a child below the age of 18 at the time of regular UI exhaustion this provides quasi-experimental variation which I exploit using a regression discontinuity design. I find that although increasing potential UI duration by 30 weeks increases actual take up by about 2.7 weeks, overall duration in unemployment and the probability of employment is largely unaffected. Moreover, I find no evidence of job-seekers manipulating the hazard to employment such that it coincides with UI benefit exhaustion. This result is attributed to generous replacement rates offered in other assistance programs available to job seekers who exhaust their benefits.