Wage changes after different types of dismissal in Denmark of - PowerPoint PPT Presentation

“Wage changes after different types of dismissal in Denmark” of dismissal in Denmark Simon Bodilsen Niels Westergaard ‐ Nielsen C Center for Corporate Performance f C P f Aarhus University 15/05/13 1

Introduction Introduction • Wage loss for movers due to reasons for Wage loss for movers due to reasons for moving and dismissal – Collective dismissals survivors and casualties – Collective dismissals, survivors and casualties – Moving with and without unemployment • Has the crisis changed the pattern? H th i i h d th tt ? 15/05/13 2

Institutional setting Institutional setting • Relative easy to lay workers off Relative easy to lay workers off – Denmark is number 7 on OECD scale for individual job protection and 25 for collective dismissals job protection and 25 for collective dismissals – Institutions • UI where most workers are members UI where most workers are members • Relatively high UI • Duration of UI • Retirement pension systems • Vacation pay 15/05/13 3

Consequences of easy lay offs Consequences of easy lay offs • Firms lay off more and are more reluctant to Firms lay off more and are more reluctant to cut wages • Relatively high UI makes workers less reluctant • Relatively high UI makes workers less reluctant to accept lower wages, – but the depth of the crisis may induce them, 2008 b t th d th f th i i i d th 2008 – (change in 2010: duration of UI limited to 2 years) 15/05/13 4

Data Data • Danish Register data – IDA database g • 2000 – 2009 • Private sector only • 1.5 million observations per year • Of which around 260.000 move per year • Hourly wage (CPI adjusted), so no bias due to non work • November employment in t compared with • November employment in t compared with November employment in t+1 • Problem with wage statistics in 2003 g 15/05/13 5

Sample description Sample description 25 ‐ 55 and 10+ Full sample p Aged 25 ‐ 55 g employees p y Movers 2000 1489435 1047087 884456 126918 2001 1516116 1065793 902063 134192 2002 1516978 1064082 899121 125262 2003 1506492 1047862 882451 110270 2004 2004 1480827 1480827 1027739 1027739 858709 858709 107503 107503 2005 1424363 981259 817543 110539 2006 1453211 992439 827624 131455 2007 1503052 1012817 843895 138117 2008 1547137 1033664 862173 147173 2009 1552823 1024546 858684 100159 15/05/13 6

Movers with and without job Movers with and without job 18.0 16 0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2 0 2.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Moved with job Moved with job Not employed Not employed 15/05/13 7

Wage growth Wage growth 0.08 0 06 0.06 0.04 0.02 0.00 ‐ 0.02 ‐ 0.04 ‐ 0.06 ‐ 0.08 ‐ 0.10 ‐ 0.12 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 movers stayers 15/05/13 8

Model Model • Wage (per hour) growth between t and t+1 age (pe ou ) g o t bet ee t a d t • Displacement happens between t and t+1 – Mass dismissal at firm level – Surviving mass dismissal – Incidental lay offs/moves • Controls for – Length of education, occupation level, age, gender, region i – Industry – UI membership UI membership 15/05/13 9

Identification strategy Identification strategy • Mass dismissal: Reduction in staff of 30% or at Mass dismissal: Reduction in staff of 30% or at least 5 persons from t to t+1 • More likely laid off: Movers with subsequent • More likely laid off: Movers with subsequent unemployment • Less likely laid off: Movers without L lik l l id ff M i h unemployment in connection to job change 15/05/13 10

Reasons for separation Accumulated l d 20 0 20.0 18.0 16.0 14 0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Mass dismissed or firm closure Survived mass dismissal Changed job, unemployment spell Changed job, no unemployment spell 15/05/13 11

Moving versus dismissal Moving versus dismissal • Data tell us if a person has moved from a firm Data tell us if a person has moved from a firm but hard to distinguish between – Moving for a better job? – Moving for a better job? • We know from Bingley and W ‐ N that people on average earn 2/7 of their total life time income by moving. – Or moving because of dismissal? 15/05/13 12

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What do we find? What do we find? • Changed job without unemployment has the Changed job without unemployment has the highest wage growth in accordance with B&W ‐ N B&W N • Mass dismissal and closure do not scar people • Surviving mass destruction does not scar S i i d i d either • Laid off workers (moved and unemployed) have the lowest wage growth 15/05/13 17

The Crisis The Crisis • Hits in the Fall of 2008 and in 2009 Hits in the Fall of 2008 and in 2009 • W ‐ N and Neamtu, 2012 show based on a survey that firms react by laying off workers. survey that firms react by laying off workers. We loose 20% of all jobs in manufacturing and about 10% of all jobs in private sector. • Firms indicate that they did not reduce wages, but that they intend to freeze wages in 2012. • But this does not rule out that firms lower the wage for newly employed. 15/05/13 18

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Regression results 2007 ‐ 2009 Regression results 2007 2009 2007 2008 2009 Wage growth Wage growth Wage growth 0.0123 *** 0.0354 *** -0.1263 *** Mass dismissal/firm closure in current year 0.0026 0.0021 0.0019 0.0048 *** -0.0138 *** Survived mass dismissal in current year -0.0008 0.0018 0.0011 0.0009 0.0199 *** 0.0300 *** -0.1123 *** Change in job in current year and no unemp. 0.001 0.0011 0.0013 -0.0091 *** 0.0063 ** -0.1194 *** Change in job in current year and unemp. 0.0022 0.0028 0.0022 0.1202 *** 0.0724 *** 0.0036 ** Constant 0.0015 0.0017 0.0015 Observations 639018 634120 596381 R 2 0.012 0.016 0.054 Robust standard errors in parentheses. Controls for personal information, occupation and firm characteristics. * p < 0.1, ** p < 0.05, *** p < 0.01 15/05/13 20

UI membership UI membership • Voluntary insurance system (as in B, S, F, IS) y y ( , , , ) – About 65% of all in private sector insured • Non insured will get social assistance if eligible ( means tested) t t d) • We should expect that UI ‐ members will be less likely to accept lower wages than non ‐ members likely to accept lower wages than non members • But a problem that some groups are more likely to insure than others. Crisis affected groups that were not previously affected. l ff d • Estimation of interaction effect on only hourly paid paid 15/05/13 21

Effect of UI membership? Effect of UI membership? 2007 2008 2009 Wage growth Wage growth Wage growth Mass dismissal/firm closure in current -0.0475 *** -0.0199 *** -0.0036 year*UI-member 0.0104 0 0104 0 0076 0.0076 0 0077 0.0077 Survived mass dismissal in current 0.0078 ** 0.0065 0.0065 year*UI-member 0.0065 0.0042 0.0037 Change in job in current year and no -0.0199 *** -0.0168 *** -0.0235 *** unemp.*UI-member 0.0041 0.0045 0.0051 Change in job in current year and Change in job in current year and -0.016 0.0186 -0.0022 unemp.*UI-member 0.0182 0.0128 0.0111 controls Observations 419209 399026 360510 R 2 0.009 0.013 0.045 15/05/13 22