Reconsidering the cost of job loss

This paper studies the consequences of job loss. While previous literature has relied on mass layoffs and plant closures for identification, I exploit discontinuities in the likelihood of displacement generated by a last-in-first-out rule used at layoffs in Sweden. Matching data on individual layoff notifications to administrative records, I find that permanent earnings losses are only found among workers losing their job in mass layoffs, whereas workers displaced in smaller layoffs fully recover. Auxiliary analysis suggests that large layoffs increase exposure to non-employment, prolong unemployment and cause workers to leave the labor force, conceivably by affecting the local labor market.