Abstract
The churning of firms is an inherent process of industrialized economies, which entails a high rate of job destruction. Thus, a key question is: what are the policies that minimize the costs of worker displacement due to business closure? Accordingly, this paper exploits a retrospective panel of workers in 13 European countries over the period 1985–2008 to explore the factors which shape the reemployment prospects of workers displaced due to business closure. The results suggest that higher spending on active labour market policies increases the reemployment prospects of the unemployed workers displaced by business closure, both in terms of unemployment duration and in terms of stability of reemployment. On the contrary, there is evidence of a negative and sizable impact of passive labour market policies on unemployment duration.
A Appendix
Data sources.
| Variable | Definition | Source |
|---|---|---|
| ALMP | Placement and Administration, Training, Employment Incentives, Direct Job Creation and Start-up Incentives, (public expenditure as a percentage of GDP) | OECD Labour Market Programmes Database |
| PLMP | Out-of-work income support and Early retirement, (public expenditure as a percentage of GDP) | OECD Labour Marketr Programmes Database |
| Out of income Support | Corresponds to public expenditure in unemployment benefits, redundancy compensation, and bankruptcy compensation | OECD Labour Market Programmes Database |
| Average Replacement rate | Proportion of income in work that is maintained after job loss | Bassanini and Duval (2009) |
| Entry barriers | Regulation in energy, transport, and communications | OECD.stat |
B Appendix
Heterogeneous effects of labour market policies according to worker’s age.
| (1) | |
|---|---|
| ALMP (% of GDP) | 0.166*** |
| (0.0505) | |
| PLMP (% of GDP) | |
| (0.0257) | |
| Age | |
| (0.00189) | |
| ALMP | 0.00323 |
| (0.00454) | |
| PLMP | |
| (0.00193) | |
| Demographic controls | YES |
| Country-fixed effects | YES |
| Year-fixed effects | YES |
| Observations | 1,348 |
| 0.142 | |
Notes: The estimates are based on a sample of displaced workers in 13 European countries over the period 1985 to 2008. Changes in the sample size are due to different coverage of the explanatory variables. The dependent variable is a dummy that takes value 1 if an individual who lost her job due to business closure in a given year found a new job within the next year. Demographic controls include gender, age, previous job tenure, relationship status, and number of children. Robust standard errors clustered at the country 5-year period level in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10%, respectively.
Robustness to the inclusion of additional controls.
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | |
|---|---|---|---|---|---|---|---|
| ALMP (% of GDP) | 0.171*** | 0.170*** | 0.172*** | 0.155*** | 0.121** | 0.117* | 0.128* |
| (0.0525) | (0.0534) | (0.0541) | (0.0565) | (0.0591) | (0.0645) | (0.0672) | |
| PLMP (% of GDP) | |||||||
| (0.0243) | (0.0255) | (0.0256) | (0.0261) | (0.0305) | (0.0296) | (0.0302) | |
| Demographic controls | YES | YES | YES | YES | YES | YES | YES |
| Country-fixed effects | YES | YES | YES | YES | YES | YES | YES |
| Year-fixed effects | YES | YES | YES | YES | YES | YES | YES |
| Education | NO | YES | YES | YES | YES | YES | YES |
| Industry-fixed effects | NO | NO | YES | YES | YES | YES | YES |
| Total tenure and Total tenure | NO | NO | NO | YES | YES | YES | YES |
| Output gap | NO | NO | NO | NO | YES | YES | YES |
| ETCR & EPL | NO | NO | NO | NO | NO | YES | YES |
| Labour tax wedge | NO | NO | NO | NO | NO | NO | YES |
| Observations | 951 | 951 | 951 | 951 | 951 | 951 | 951 |
| 0.173 | 0.179 | 0.191 | 0.250 | 0.253 | 0.254 | 0.255 | |
Notes: The estimates are based on a sample of displaced workers in 13 European countries over the period 1985 to 2008. Changes in the sample size are due to different coverage of the explanatory variables. The dependent variable is a dummy that takes value 1 if an individual who lost her job due to business closure in a given year found a new job within the next year. Demographic controls include gender, age, previous job tenure, relationship status, and number of children. Robust standard errors clustered at the country 5-year period level in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10%, respectively.
Robustness to alternative definitions of labour market policies.
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
|---|---|---|---|---|---|---|---|---|
| ALMP spending per unemployed | 0.00251*** | 0.00295*** | 0.00285*** | 0.00328*** | ||||
| divided by GDP p.c. (%) | (0.000728) | (0.000722) | (0.000727) | (0.000701) | ||||
| PLMP spending per unemployed | ||||||||
| divided by GDP p.c. (%) | (0.00181) | (0.00181) | (0.00145) | (0.00150) | ||||
| Average unemployment benefit | ||||||||
| replacement rate (%) | (0.00258) | (0.00229) | ||||||
| Demographic controls | YES | YES | YES | YES | YES | YES | YES | YES |
| Country-fixed effects | YES | YES | YES | YES | YES | YES | YES | YES |
| Year-fixed effects | YES | YES | YES | YES | YES | YES | YES | YES |
| Education | NO | YES | NO | YES | NO | YES | NO | YES |
| Industry-fixed effects | NO | YES | NO | YES | NO | YES | NO | YES |
| Total tenure and Total tenure | NO | YES | NO | YES | NO | YES | NO | YES |
| Output gap | NO | YES | NO | YES | NO | YES | NO | YES |
| ETCR & EPL | NO | YES | NO | YES | NO | YES | NO | YES |
| Labour tax wedge | NO | YES | NO | YES | NO | YES | NO | YES |
| Observations | 972 | 972 | 972 | 972 | 972 | 972 | 1,021 | 1,021 |
| 0.165 | 0.245 | 0.162 | 0.241 | 0.170 | 0.250 | 0.156 | 0.246 |
Notes: The estimates are based on a sample of displaced workers in 13 European countries over the period 1985 to 2008. Changes in the sample size are due to different coverage of the explanatory variables. The dependent variable is a dummy that takes value 1 if an individual who lost her job due to business closure in a given year found a new job within the next year. Demographic controls include gender, age, previous job tenure, relationship status, and number of children. Robust standard errors clustered at the country 5-year period level in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10%, respectively.
Robustness to the adoption of an alternative model: probit model.
| (1) | (2) | (3) | |
|---|---|---|---|
| ALMP (% of GDP) | 0.463** | 0.472*** | |
| (0.202) | (0.151) | ||
| PLMP (% of GDP) | |||
| (0.0798) | (0.0792) | ||
| Demographic controls | YES | YES | YES |
| Country-fixed effects | YES | YES | YES |
| Year-fixed effects | YES | YES | YES |
| Observations | 1,304 | 1,367 | 1,304 |
Notes: The estimates are based on a sample of displaced workers in 13 European countries over the period 1985 to 2008. Changes in the sample size are due to different coverage of the explanatory variables. The dependent variable is a dummy that takes value 1 if an individual who lost her job due to business closure in a given year found a new job within the next year. Demographic controls include gender, age, previous job tenure, relationship status, and number of children. Robust standard errors clustered at the country 5-year period level in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10%, respectively.
Robustness to alternative clustering: country-year level.
| (1) | (2) | (3) | |
|---|---|---|---|
| ALMP (% of GDP) | 0.165** | 0.164** | |
| (0.0817) | (0.0771) | ||
| PLMP (% of GDP) | |||
| (0.0275) | (0.0282) | ||
| Demographic controls | YES | YES | YES |
| Country-fixed effects | YES | YES | YES |
| Year-fixed effects | YES | YES | YES |
| Observations | 1,304 | 1,367 | 1,304 |
| 0.126 | 0.134 | 0.136 |
Notes: The estimates are based on a sample of displaced workers in 13 European countries over the period 1985 to 2008. Changes in the sample size are due to different coverage of the explanatory variables. The dependent variable is a dummy that takes value 1 if an individual who lost her job due to business closure in a given year found a new job within the next year. Demographic controls include gender, age, previous job tenure, relationship status, and number of children. Robust standard errors clustered at the country year-level in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10%, respectively.
Percentage of workers aged 20–64 displaced from one year to the next, 1985–2008.
Notes: this graph shows the percentage of workers aged 20 to 64 who lose their job each year due to business closure, by country. Years 1985 to 2008.
Acknowledgements
We thank the Co-Editor Frans de Vries and one anonymous referee for their helpful comments and suggestions. The authors would also like to thank Catherine L. Mann, Giuseppe Nicoletti, Jean-Luc Schneider, Lilas Demmou, Oliver Denk, Paula Garda, Valentine Millot, Andrea Bassanini, Axel Börsch-Supan, Tabea Bucher-Koenen, and seminar participants at the OECD and Munich Center for the Economics of Aging for their valuable comments; Catherine Chapuis and Sarah Michelson for statistical and editorial support. The SHARE data collection has been primarily funded by the European Commission through FP5 (QLK6-CT-2001-00360), FP6 (SHARE-I3: RII-CT-2006-062193, COMPARE: CIT5-CT-2005-028857, SHARELIFE: CIT4-CT-2006-028812) and FP7 (SHARE-PREP: N211909, SHARE-LEAP: N227822, SHARE M4: N261982). Additional funding from the German Ministry of Education and Research, the Max Planck Society for the Advancement of Science, the U.S. National Institute on Aging and from various national funding sources is gratefully acknowledged (see www.share-project.org).
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