September 29, 2014

Labour market effects of job displacement for prime-age and older workers

This paper studies the effect of firm closures for prime-age and older workers. Administrative data on the Dutch labour force are used to follow a sample of Dutch workers who lost their jobs due to firm closures in the period 2000 - 2009.
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Applying difference-in-difference techniques and using a control group created by exact matching, we find that involuntary job loss has a severe impact on older workers' labour market prospects. Finding a new job is relatively difficult, and wage cuts are more substantial once they find a new job. The differences between prime-age and older workers are partly mediated by tenure and industry effects. Not only do older workers on average have longer job tenures than prime-age workers, older workers with longer job tenures experience more negative effects of displacement as well. For prime-age workers tenure in the job before displacement makes less of a difference for their outcomes after displacement. Likewise, displaced older workers are more sensitive to the situation in the local labour market in the industry from which they are displaced. Moreover, older workers experience stronger negative effects of changing industries after displacement on their post-displacement wages.

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