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13 July 2016

Spillover Effects from Mass Layoffs

Using administrative data of all workers and firms in Germany, we quantify the spillover effects of mass layoffs. Our empirical strategy combines matching with an event study approach to trace employment and wages in regions hit by a mass layoff to suitable control regions. We find sizable and persistent negative spillover effects on the regional economy: regions, and especially firms producing in the same sector as the layoff plant, lose many more jobs than in the initial layoff. Based on a simple model of local labor markets, our estimates imply an agglomeration elasticity of 0.19. We find much smaller effects for local firms in the non-tradable sector indicating a local multiplier of around 0.5. Despite substantial employment losses for the region, we find much smaller negative consequences for workers employed in the region at the time of the mass layoff. At least half of the difference is accounted for by the geographic relocation of workers across local labor markets.

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  • Christina Gathmann, Universität Heidelberg

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