Job Displacements: Effects on Individuals and Potential Policy Remedies

Project leader

Funding source

Forte - Swedish Research Council for Health, Working Life and Welfare

Project Details

Start date: 01/01/2016
End date: 31/12/2018
Funding: 3330000 SEK


The high unemployment rates across the industrialized world have spurred a vivid debate on potential policy remedies. The situation is acute since the share of individuals lacking satisfactory Unemployment Insurance has increased in recent years and since the high unemployment is particularly widespread among youths. This project investigates aspects of involuntary job loss and assesses ways of alleviating the effects of such displacements.

I start by assessing individual effects of displacements using an empirical strategy preferable to the ones used in the existing literature. Previous studies show that job loss can have dire effects on health and future income, but are unable to distinguish between quits and layoffs empirically. Using features of Swedish labor law and detailed microdata, I can distinguish between these types of separations and therefore identify the true effects of displacements.

A second set of projects, combining theory and empirics, is devoted to how policies should be designed to ease the costs of displacements.

First, I assess the optimal design of voluntary Unemployment Insurance. By using a sharp increase in Swedish membership premia, that resulted in about half a million individuals opting out of insurance schemes in 2007, I estimate the causal effect of premia on membership. Using unique individual data, the project addresses whether vulnerable individuals at high risk of unemployment are particularly prone to lack sufficient insurance.

Second, I explore the potency of payroll tax cuts in stimulating hiring in recessions. While such tax cuts typically apply only to new hires, I propose a new channel through which tax cuts also on existing workers may boost hiring. If firms are liquidity constrained in recessions, a payroll tax cut on incumbent workers relaxes these constraints and enables hiring. I test this hypothesis using a Swedish reform from 2007, when payroll taxes on young workers were cut by 15 percentage points.

Last updated on 2017-11-05 at 13:54