“Wage changes after different types of dismissal in Denmark”of dismissal in Denmark  

Simon BodilsenNiels Westergaard‐Nielsen

C f C P fCenter for Corporate Performance Aarhus University

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IntroductionIntroduction

• Wage loss for movers due to reasons forWage 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

H th i i h d th tt ?• Has the crisis changed the pattern?

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Institutional settingInstitutional setting

• Relative easy to lay workers offRelative easy to lay workers off– Denmark is number 7 on OECD scale for individual job protection and 25 for collective dismissalsjob protection and 25 for collective dismissals

– Institutions• UI where most workers are membersUI where most workers are members

• Relatively high UI

• Duration of UI

• Retirement pension systems

• Vacation pay

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Consequences of easy lay offsConsequences of easy lay offs

• Firms lay off more and are more reluctant toFirms 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, 

b t th d th f th i i i d th 2008– but the depth of the crisis may induce them, 2008

– (change in 2010: duration of UI limited to 2 years)

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DataData

• Danish Register data – IDA databaseg• 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 2003g

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Sample descriptionSample description

Full sample Aged 25‐5525‐55 and 10+ employees Moversp g p y

2000 1489435 1047087 884456 126918

2001 1516116 1065793 902063 134192

2002 1516978 1064082 899121 125262

2003 1506492 1047862 882451 110270

2004 1480827 1027739 858709 1075032004 1480827 1027739 858709 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

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Movers with and without jobMovers with and without job

16 0

18.0

12.0

14.0

16.0

8.0

10.0

2 0

4.0

6.0

0.0

2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Moved with job Not employedMoved with job Not employed

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Wage growthWage growth

0 06

0.08

0.02

0.04

0.06

‐0.02

0.00

‐0.08

‐0.06

‐0.04

‐0.12

‐0.10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

movers stayers

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ModelModel

• Wage (per hour) growth between t and t+1age (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, 

iregion– Industry – UI membershipUI membership

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Identification strategyIdentification strategy

• Mass dismissal: Reduction in staff of 30% or atMass 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 

L lik l l id ff M i h• Less likely laid off: Movers without unemployment in connection to job change 

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Reasons for separationl dAccumulated

20 0

14 0

16.0

18.0

20.0

10.0

12.0

14.0

4.0

6.0

8.0

0.0

2.0

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

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Moving versus dismissalMoving versus dismissal

• Data tell us if a person has moved from a firmData tell us if a person has moved from a firmbut 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?

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What do we find?What do we find?

• Changed job without unemployment has theChanged job without unemployment has the highest wage growth in accordance with B&W‐NB&W N

• Mass dismissal and closure do not scar people

S i i d i d• Surviving mass destruction does not scar either

• Laid off workers (moved and unemployed) have the lowest wage growth

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The CrisisThe Crisis

• Hits in the Fall of 2008 and in 2009Hits 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.

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Regression results 2007‐2009Regression results 2007 2009

2007 2008 2009Wage growth Wage growth Wage growth

Mass dismissal/firm closure in current year 0.0123*** 0.0354*** -0.1263***

0.0026 0.0021 0.0019

Survived mass dismissal in current year 0.0048*** -0.0008 -0.0138***

0.0018 0.0011 0.0009

Change in job in current year and no unemp. 0.0199*** 0.0300*** -0.1123***

0.001 0.0011 0.0013

Change in job in current year and unemp. -0.0091*** 0.0063** -0.1194***

0.0022 0.0028 0.0022

Constant 0.1202*** 0.0724*** 0.0036**

0.0015 0.0017 0.0015

Observations 639018 634120 596381R2 0.012 0.016 0.054Robust standard errors in parentheses. Controls for personal information, occupation and firm characteristics.* p < 0.1, ** p < 0.05, *** p < 0.0115/05/13 20

UI membershipUI 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 ( t t d)means tested)

• We should expect that UI‐members will be less likely to accept lower wages than non‐memberslikely to accept lower wages than non members

• But a problem that some groups are more likely to insure than others. Crisis affected groups that 

l ff dwere not previously affected.• Estimation of interaction effect on only hourly paidpaid

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Effect of UI membership?Effect of UI membership?

2007 2008 2009Wage growth Wage growth Wage growth

Mass dismissal/firm closure in current year*UI-member -0.0475*** -0.0199*** -0.0036

0 0104 0 0076 0 00770.0104 0.0076 0.0077

Survived mass dismissal in current year*UI-member 0.0065 0.0065 0.0078**

0.0065 0.0042 0.0037

Change in job in current year and no unemp.*UI-member -0.0199*** -0.0168*** -0.0235***

0.0041 0.0045 0.0051

Change in job in current year andChange in job in current year and unemp.*UI-member -0.016 0.0186 -0.0022

0.0182 0.0128 0.0111

controlsObservations 419209 399026 360510R2 0.009 0.013 0.04515/05/13 22