Job displacement in France and its consequences Vahé Nafilyan OECD, Paris School of Economics 1
Motivation Job displacement: major concern in France Little is known about the consequences of displacement on labour market prospects Main question: What is the cost of job displacement in terms of earnings and job quality?
Outline I – Institutional Context II- Data III- Displacement Risk IV- Re-employment prospects V- Cost of job loss
I- French Labour Legislation Two ways to dismiss an employee with open-ended contract: • Dismissal for economic reason ( Licenciement pour motif économique) • Dismissal on personal grounds ( Licenciement pour motif personnel) Introduction (Q4 -2008) of the rupture conventionnelle : termination of contract on joint employee/employer initiative.
Dismissal for Economic Reason Dismissal for economic reasons strongly regulated Aiming to prevent employers to target specific employees An order of dismissals ( ordre de licenciements) must be defined according to objective criteria that are set by collective agreements The Labour Code defines 4 criteria: • the family situation • job tenure • individual characteristics that hinder re-employment prospects (age, disability) • professional qualifications
Job displacement and dismissal for economic reason High cost of dismissal for economic reason Other ways to adjust the workforce: • voluntarily separation plan • decreasing the number of temporary workers Only part of the job separations due to economic reasons are captured when looking at dismissals for economic reason
II- Data Enquête Emploi (Labour Force Survey) 2003-2011 Sample to individuals surveyed up to six consecutive quarters • N=1,308 Combining retroactive questions and the panel dimension of the data, individuals can be tracked for up to 10 quarters • N=2,533
Potential data issues Attrition: only 60% of the individuals are surveyed 6 times Measurement error: reasons for job separation may be uncorrectly reported
Quarterly displacement rates : administrative vs. survey data Administrative data (MMO-DMO) Enquête Emploi 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 Note: displacement rate is computed as a share of the employees working in companies with 10 employees or more
III- Risk of job displacement Model: X includes: Age ; Gender; Education level; Family situation ; Nationality; Occupation; Industry ; Job tenure ; Crisis. + region and year fixed effects
Older workers have a higher incidence of displacement After the crisis Before the crisis 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 25 30 35 40 45 50 55 60 and more Age
Lower displacement rates for tertiary educated workers Before the crisis After the crisis 0.8% 0.6% 0.4% 0.2% 0.0% Upper tertiarry Short-cycle tertiary Upper secondary Vocational Lower secondary No degree education secondary
Industry and construction workers are more at risk Pre-crisis Post-crisis 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Agriculture Industry Construction Wholesale/retail Transport, utilities Finance/business Other services
Short tenured workers are more likely to be displaced Pre-crisis Post-crisis 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% less than 5 years 5 to 10 10 to 20 More than 20
IV-Re-employment prospects of displaced workers Labour market status following displacement Employed Unemployed NILF 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 Quarters following displacement
Which characteristics matter for re-employment? Model: X includes: Age ; Gender ; Education level;Family situation ; Nationality; previous job characteristics ; Crisis. + region and year fixed effects
Lower re-employment rates after the crisis Pre-crisis Post-crisis 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 Quarters following displacement
Older workers face lower re-employment rates within one year within two year 100% 80% 60% 40% 20% 0% 25 30 35 40 45 50 55 60 and more Age
Only half of the displaced workers find a permanent job Within one year Within two years % % Pre-crisis post-crisis Pre-crisis post-crisis 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Permanent Regular fixed- Other Self employed Permanent Regular fixed- Other Self employed contract term contract temporary contract term contract temporary contracts contracts
V- The Cost of Job Loss 1- Wages 2- Job insecurity 3- Working time 4- Paid holidays
Estimating the earnings loss Estimation strategy: Information on wages collected only at the first and last interrogation Control group : those employed on a permanent contract one year before the first interrogation and who have not been dismissed.
Wage loss 400 200 0 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 -200 -400 Euros -600 -800 -1000 -1200 -1400 -1600 Quarters before and after displacement
Earnings loss Wage Wage+unemployment benefits 400 200 0 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 -200 -400 Euros -600 -800 -1000 -1200 -1400 -1600 Quarters before and after displacement 23
Monthly wage loss for re-employed displaced workers Slightly higher than what is found by Lefranc (2003)
Causal impact? Are we capturing the causal impact of displacement on earnings? The set of β coefficients is unbiased if displacement is uncorrelated with the error term. The legal framework regulating dismissal for economic reason provides some reasons to believe that selection is made on observables.
Increased job insecurity A substantial share of re-employed displaced workers are employed under temporary contract. Quartely involuntary job loss rate No involuntary Made redundant separation over the over the past year past year 6.85% 0.87% Re-employed displaced workers are 8 times as likely to experience an involuntary job separation as those who have not been dismissed over the past year
Increased part-time work Part-time work differential 7% 6% 5% 4% 3% 2% 1% 0% -3 -2 -1 0 1 2 3 4 5 6 7 8 9 -1% -2% -3% Note: the dependent variable is an indicator equal to one if the individual is working part-time. Linear probability model with individual fixed effects
Fewer paid holidays 0.4 0.2 0 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 Number of weeks -0.2 -0.4 -0.6 -0.8 -1 -1.2 Quarters before and after displacement Note: the dependent variable is the number of weeks of paid leave . Model with individual fixed effects
Conclusion and Policy Implication The cost of job loss is driven by : 1) Long non-employment spells 2) Lower quality jobs Policies need to address both issues
Thank you for your attention!
Appendix
Pre vs. post displacement wages Information on wages collected only at the first and last interrogation First estimation of wage loss: before/after (Fixed effect model) 1 2 3 Control group : workers Wage Wage employed on permanent Dependent variable (including 0 (excluding 0 log of wage values) values) contract in the first interrogation and not Displaced -1008.4 -111.6 -0.088 dismissed (32.2)*** (41.1)*** (0.024)*** Job characteristics No Yes Yes N 165,616 157,611 157,611 F 127.09 21.4 64.1 Problem: do not capture foregone earnings growth
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