Consequences of job loss for routine workers

Routine-biased technological change has led to the worsening of labour market prospects for workers in exposed occupations as their work has increasingly been done by machines. Routine workers who have lost their jobs in mass displacement events are likely to have been a particularly affected group, due to potential difficulties in finding new employment that matches their skills and experience. In this study, the annual earnings, employment, monthly wages and days of unemployment of displaced routine workers are compared to those of displaced non-routine workers using Swedish matched employer-employee data. The results show substantial routine-occupation penalties among displaced workers, which persist in the medium to long term. Compared to displaced non-routine workers, displaced routine workers lose an additional year’s worth of pre-displacement earnings and spend 180 more days in unemployment. A possible channel for this effect is the loss of occupation- and industry-specific human capital, as routine workers are unable to find jobs similar to those they had before becoming displaced. I do not find evidence that switching to a non-routine occupation reduces routine workers’ losses, but rather there are indications that switchers do worse in the short-to-medium run. The findings suggest that the effects of labour-replacing technological change on the most exposed individuals can be severe and difficult to ameliorate.

Keywords: Routine-biased technological change; Mass layoffs

JEL codes: J63; O33