Regional effects of mass layoffs in Finland

Abstract

In my thesis, I study the causal effect of mass layoffs on local labor markets in Finland in 1989-2013. The analysis is conducted by comparing developments over time between commuting zones (CZ) that experience a mass layoff event and those that do not, attributing the difference to the layoff events. I focus on the effects on regional employment, income, population, unemployment and non-employment.

The topic is highly relevant from the point of view understanding the dynamics of local labor markets. Mass layoffs affect not only the individuals who lose their jobs, but potentially also people working in other firms operating in the same area through negative spillover effects, of which there is evidence in empirical literature. Understanding regional effects of mass layoffs is also important for designing public policy, since governments spend considerable financial resources on regional policies that aim at supporting struggling regions.

I find that in the layoff year, a mass layoff of 1% of CZ population leads to a 1.4% decline in employment that translates mainly to an increase in unemployment, while only a 0.1% of population migrates to other CZs. The effect on CZ-level income is also limited. In the medium term, employment appears to recover somewhat, while population and income decline further. Among those that stay in the layoff CZ, the share of unemployed improves relative to the initial decline, while the share of inactive population gradually increases.