Effects of Job Loss on ICT Sector Employees’ Labor Market Outcomes

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School of Business | Master's thesis
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I study the causal effect of job loss on ICT workers’ employment level, earnings, probability of becoming an entrepreneur and probability of leaving the ICT sector. Previous research is unanimous with the finding that job loss has several negative and persistent effects not only on individuals’ future employment and income, but also on health and fertility. This thesis contributes to the previous literature by focusing on the most recent years and sector-specific effects. ICT sector is a relatively large employer in Finland compared to other OECD countries, and during the past years it has also become a large source of lay-offs. My thesis examines the workers who lost their job due to a plant closure or a mass lay-off, and compares them with labor market outcomes experienced by workers who were not impacted by plant closure or mass-layoff, but who are similar by observable characteristics. As the effects might vary over time, I study the effects experienced after job loss during four different time periods: 2009-2011, 2005-2007, 1998-2000 and 1991-1993. I find that in general, there are no systematic differences in effects of job loss between ICT and non-ICT workers. One year after job loss, displaced ICT workers experience 5.2-14.4 percentage points lower employment level compared to their counterparts, while displaced non-ICT workers experience 3.3-23.0 percentage points lower employment level compared to their counterparts. The effect varies greatly between time periods; job loss during the recession period of 1991-1993 has the most severe effects, while other three periods are rather similar to each other. In terms of the effect on income, my results suggest that displaced ICT workers experience 3.2-15.0% lower income one year after displacement, while displaced non-ICT workers experience 7.1-12.7% lower income, compared to their counterparts. When comparing the differences in earned income, ICT and non-ICT workers differ more. However, the evidence across time periods is mixed, suggesting larger losses for ICT workers during the three most recent periods. All displaced workers have rather small increase of 0.1-0.7 percentage points in the probability of becoming an entrepreneur followed by displacement. I find no statistically significant differences between displaced ICT and displaced non-ICT workers. Lastly, job loss decreases the probability of staying in the ICT sector by 9.8 percentage points during the most recent observation period, when differences in employment level have been taken into account. During more recent periods, displaced workers seem to be more prone of leaving the sector, but they are also more likely to return than workers displaced during earlier time periods.
Thesis advisor
Bagues, Manuel
job loss, ICT sector, entrepreneurship, earnings