Are Mass Layoffs Individually Costly But Socially Beneficial?

Axelle Arquié and Thomas Grjebine

Working Papers from CEPII research center

Abstract: Relying on rich administrative data, this paper examines the adaptive capabilities of the French labor market in the aftermath of large-scale layoffs in the manufacturing sector. We assess both individual and aggregate effects of these shocks, using a unique quantitative definition of mass layoffs. We first show that displaced workers suffer a long-lasting increase in the probability of being unemployed and, for those who find a job, a decrease in their salary. While mass layoffs entail costs for displaced workers, there is a possible social benefit if they result in productive reallocation of workers to the most innovative companies and in the creation of new firms. Remarkably, our findings indicate that firms that hire displaced workers exhibit lower investment rates, decreased value added, and a reduced workforce, with a higher proportion of employees on fixed-term contracts. Additionally, mass layoffs do not contribute to the enhancement of allocative efficiency, as the most skilled workers are less likely to be matched with the most successful establishments. Furthermore, we assess the extent to which local economies adapt to these shocks, revealing that, six years after the mass layoff event, the local unemployment rate is 12% higher in comparison to unaffected regions. Lastly, the affected areas experience a diminished share of new establishment creation.

Keywords: Mass layoffs; Sorting (search for similar items in EconPapers)
JEL-codes: J31 J42 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-lma and nep-ure
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