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Spillover Effects in Local Labor Markets: Evidence from Mass Layoffs

Author

Listed:
  • Gathmann, Christina
  • Helm, Ines
  • Schönberg, Uta
Abstract
Governments are often willing to subsidize firms on the verge of bankruptcy. The main economic rationale behind these interventions is that a plant closure would not only harm the workers employed in that plant, but create a domino effect on the regional economy as a whole. Yet, little is still known empirically how important these spillover effects are for economic development in the region. 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 sizeable negative spillover effects on the regional economy: regions, and especially firms producing in the same sector as the firm hit by a mass layoff, lose many more jobs than in the initial layoff. In contrast, we find few negative effects for workers employed (but not directly affected by the layoff) in the region. As such, mass layoffs seem to have negative spillovers locally, but not nationally.

Suggested Citation

  • Gathmann, Christina & Helm, Ines & Schönberg, Uta, 2014. "Spillover Effects in Local Labor Markets: Evidence from Mass Layoffs," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100378, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100378
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    1. Yusuf Mercan & Benjamin Schoefer, 2020. "Jobs and Matches: Quits, Replacement Hiring, and Vacancy Chains," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 101-124, March.
    2. Peter Haller & Daniel F. Heuermann, 2020. "Opportunities and competition in thick labor markets: Evidence from plant closures," Journal of Regional Science, Wiley Blackwell, vol. 60(2), pages 273-295, March.
    3. Frank Neffke & Anne Otto & César Hidalgo, 2016. "The mobility of displaced workers: How the local industry mix affects job search strategies," Papers in Evolutionary Economic Geography (PEEG) 1605, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Mar 2016.
    4. Malte Sandner & Pia Wassmann, 2018. "The Effect of Changes in Border Regimes on Border Regions Crime Rates: Evidence from the Schengen Treaty," Kyklos, Wiley Blackwell, vol. 71(3), pages 482-506, August.
    5. Nimczik, Jan Sebastian, 2017. "Job Mobility Networks and Endogenous Labor Markets," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168147, Verein für Socialpolitik / German Economic Association.
    6. Wassmann, Pia, 2016. "Do Open Borders Tempt a Saint? Evidence from Schengen on Crime Rates in German Border Regions," VfS Annual Conference 2016 (Augsburg): Demographic Change 145878, Verein für Socialpolitik / German Economic Association.
    7. Marta Bisztray, 2016. "The effect of foreign-owned large plant closures on nearby firms," CERS-IE WORKING PAPERS 1623, Institute of Economics, Centre for Economic and Regional Studies.
    8. Atkins, Ryan & Favreau, Charles, 2022. "The effects of layoffs and plant closings on manufacturers’ market value," International Journal of Production Economics, Elsevier, vol. 245(C).
    9. Pia Wassmann, 2016. "Do open borders tempt a saint? Evidence from Schengen on crime rates in German border regions," ERSA conference papers ersa16p539, European Regional Science Association.
    10. Mathieu Sanch-Maritan & Lionel Vedrine, 2019. "Are larger labor market more resilient? Evidence of the French army restructuring on exit from unemployment," Working Papers hal-02332809, HAL.

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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