DISPLACED BY GLOBALIZATION: CHANCE OR THREAT? A CASE STUDY*

Transcription

1 DISPLACED BY GLOBALIZATION: CHANCE OR THREAT? A CASE STUDY* Smone Wyss** Faculty of Busness and Economcs, Unversty of Basel Prelmnary Draft: July 2009 Abstract: The vson of globalzaton-dsplaced workers as permanent unemployed workers s prevalent n meda and publc. But s ths percepton of dsplaced workers as losers of globalzaton n general true? Accordng to trade theory ths must not be the case. After all, globalzaton leads not only to job destructon, but as well to job creaton and thus to new and maybe even better pad job opportuntes for dsplaced labor. Based on an emprcal analyss of Swss frm and ndvdual data ths paper shows () that whle many workers dsplaced by globalzaton fnd new and sometmes even better pad jobs, notably old and unsklled workers wthhold a hgh rsk to be harmed after beng dsplaced by globalzaton. Whle these groups at rsk are the same as n other ndustralzed countres, ths paper shows () that the adjustment costs of globalzaton-dsplaced workers n Swtzerland are nterestngly consderably lower than n other European countres and the US. JEL classfcaton: F4; F6; J63 Keywords: Globalzaton; Dsplaced Workers; Swtzerland *Acknowledgement: Specal thanks go to the partcpatng frms and workers. For suggestons and constant advce, I sncerely thank Rolf Weder. Many thanks go also to George Sheldon and my colleagues at the Unversty of Basel for helpful comments and support. The fnancal support from the State Secretarat for Economc Affars (SECO) and the WWZ Forum Basel s gratefully acknowledged. **Peter Meran-Weg 6, CH-4002 Basel, Swtzerland; Emal: smone.wyss@unbas.ch

2 . Introducton Globalzaton--defned as ncreasng nternatonal dvson of labor through trade wth goods and servces--leads on ndustry and frm level to structural adjustment and thus to job creaton and destructon. Assessng ths structural change, meda and publc focus strongly on job destructon, thereby presentng dsplaced workers as losers of globalzaton. The regular uproar followng job cuts caused by globalzaton n the North shows that ths fear s deeply anchored n the publc mnd. Gven ths perspectve, the crtcs toward restructurng frms and the publc affnty to protect non-payng jobs by ndustral polcy seem to be legtmate. But s the percepton of dsplaced workers as losers of globalzaton n general true? Accordng to trade theory ths must not be the case. After all, globalzaton leads also to job creaton and thus to new and maybe even better pad job opportuntes for dsplaced workers. Yet, the queston of whether ths theoretcal expectaton manfests tself n practce s however an emprcal queston. In case of Swtzerland the adjustment costs of dsplaced workers have--regardless ts trgger and relevancy for economc polcy--not yet been assessed. Nevertheless, prevous emprcal work from Sheldon (999) on formerly unemployed workers n Swtzerland suggests that the adjustment costs of globalzaton dsplaced labor n Swtzerland could be sgnfcantly lower than n other countres. Not only, are the adjustment costs of formerly unemployed Swss workers --as wll be showed n secton 2--clearly lower than the ones from dsplaced workers n other OECD countres. In addton, accordng to Salant (977) the adjustment costs of formerly unemployed workers are even expected to be hgher compared to dsplaced workers n general as ther endowment wth unfavorable socodemographc characterstcs s expected to be hgher. Gbbons and Katz (99) affrm ths 2

3 expectaton by showng that the Lemons Problem explans why labor market outcome n case of selectve layoffs s worse than n case of mass layoffs. Ths assessment should provde a reason good enough to assess the adjustment costs and opportuntes of globalzaton dsplaced labour n Swtzerland and compare t to other OECD countres. To do so, ths study conducts the frst analyss of employment and wage effects of workers who have lost ther jobs n Swtzerland n the wake of globalzaton and structural change based on Swss frm and ndvdual data. The analyss s drected by the followng three research questons: () What happens to the affected workers durng the reorganzaton? (2) Do they fnd new jobs and, f yes, where and at what prce? (3) Whch of the affected workers run a hgh rsk to lose from dsplacement? The remander of the paper s structured as follows. Secton 2 revews brefly the basc deas of trade theory and the so far conducted emprcal research. Secton 3 and 4 ntroduce the methodology and data used to run the emprcal analyss. In secton 5 the results of the descrptve and econometrc analyss are presented. Secton 6 concludes. 2. Globalzaton and Job Dsplacement: What we know by now 2.. Theory Internatonal trade theory has developed a broad body of lterature whch determnes the wnners and losers of an ncreasng nternatonal dvson of labor through trade wth goods and servces. Thereby a varety of condtons that descrbe real world stuatons are consdered. In a nutshell, standard trade theory consders globalzaton to be benefcal to overall welfare whle beng a potental threat for workers endowed wth characterstcs specfc to a non-compettve and thus descendng ndustry: be t through real wage cuts (Jones, 965), be t--assumng wage rgdty--through unemployment (Davs, 998). Con- 3

4 trarwse, for moble workers endowed wth characterstcs well demanded by or specfc to the compettve and thus expandng ndustry, globalzaton can be benefcal. Newer theores concernng fragmentaton (Jones, 2000 such as Egger and Kreckemeer, 2008) and off-shorng (Feenstra, 2004) don t dffer much from ths assessment, despte that the labor market adjustment caused by trade n ntermedates foremost takes place wthn the ndustry (.e. contractng vs. expandng frms). Thus, trade theory suggests that workers harmed by globalzaton can, but must not be dentcal to workers dsplaced by globalzaton. After all, dsplaced workers can be endowed wth characterstcs or sklls well demanded by expandng ndustres or frms. Of course, the reverse can as well be true. In well developed countres such as Swtzerland--holdng a comparatve advantage n the producton of (human-) captal ntensve goods and servces--trade theory expects low sklled labor to be harmed by globalzaton. Frst, low sklled workers have a hgher rsk beng dsplaced n the wake of globalzaton than medum and hgh sklled workers. Ther employment share n labor ntensve ndustres (apparel and clothng) or actvtes (producton) s dsproportonal hgh (Kletzer, 200). Second, globalzaton and technologcal change lead to an ncrease n the relatve demand of hgh to low sklled labor (Deardorff 998) and a shft of low sklled jobs from ndustry to the servce sector worsenng the labor market stuaton of the unsklled (Sheldon, 2008). 2 Thus after beng dsplaced by globalzaton, the low sklled worker needs to fnd a new job under worse condtons. Taken to extremes, the dsplaced low sklled can For further detals compare Krugman and Obstfeld (2003), chapter 3 and 4. 2 Gven the relatve low captal endowment of the servce sector relatve to the ndustry, the labor productvty of low sklled and thus ther wages n the servce sector tend to be lower than n the ndustry. In case of Swtzerland, the average wage of low sklled n the servce sector was n % lower compared to the ndustry sector (own calculaton based on BFS, 2008). 4

5 accept the new stuaton and suffer from a relatve or even absolute wage cut or - n case of wage rgdty - be faced wth structural unemployment (Krugman, 995). However regardng labor dsplacement and potental groups at rsk, trade theory alone doesn t tell the whole story. In addton, there s obvously need to draw on labor theory. Taken a labor theory perspectve, old workers and workers loosng frm, ndustry or sector specfc human captal are expected to run a hgh rsk beng harmed by dsplacement regardless of the trgger. Frst, accordng to the theores of human captal (Becker, 962) and senorty (Laezar, 979) older workers hold a hgher rsk of becomng unemployed once beng dsplaced. The amortzaton tme for the frm reemployng and renvestng n an older worker s relatve to a younger worker short, whle the senorty wage of the older worker s relatvely hgh. Thus holdng all thngs equal but age, frms have a tendency to fll ts vacances wth younger workers. Second, n order to get reemployed some workers need to change frm, ndustry or sector thereby runnng rsk to loose accumulated specfc human captal, be t through formal educaton, on-the-job tranng, nformaton on the busness etc. In case the (specfc) human captal of a worker s reduced n the wake of dsplacement, so s hs equlbrum wage; a wage cut the worker can except or become unemployed. 3 Last but not least, dsplacement can go n lne wth a loss of unon or effcency wage rents (Fallck, 996). Snce the latter are rather seldom n ndustres wth hgh competton ther role n the here dscussed framework s expected to be of mnor relevance. Thus, based on trade and labor theory we expect that workers dsplaced by globalzaton run especally hgh rsk to loose (wn) n case of the socodemographc characterstcs 3 For further detals on human captal theory compare Becker (962). 5

6 of low sklls and hgh age, whereas the loss of specfc human captal or prevous wage rents are addtonal rsks Emprcal Evdence The employment and wage effects of mass-layoffs are subject to the so called Dsplaced Workers Lterature. Already n 968, Palen and Fahey analyzed n a US case study the reemployment and unemployment quote of workers dsplaced after a frm closure. Frst emprcal work based on survey data was conducted n the late 980s. Whle Addson and Portugal (989) focused on all dsplaced US workers, Kruse (988) concentrated hs research on trade-dsplaced US workers. These two strands pull through the by now many countres embracng emprcal work 4, whereas Ruhm (99) and Jacobson, LaLonde and Sullvan (993) are key references n general and Kletzer (2000 and 200) regardng tradedsplaced workers n partcular. Gven the here relevant research queston ths research can be broken down to three common observatons and one research gap. Frst, the losers of dsplacement are per defnton those who don t get reemployed or, n case of reemployment, experence permanent wage cuts. Second, n the medum term many dsplaced workers fnd a new job wth neutral or postve wage effect. Accordng to the OECD (2005) lookng at 4 European countres n between 994 and 200, two years after dsplacement 57.3% of the workers are reemployed, 47.% of them wth neutral or postve wage effect. 5 Accordngly, for some dsplaced workers job destructon goes n- 4 In Kuhn (2002) Australa, Belgum, Denmark, France, Germany, the Netherlands, U.K., USA; n OECD (2005) Austra, Belgum, Denmark, Fnland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, Span and U.K.; n Bognanno und Delgado (2005) Japan; n Kaplan et al. (2005) Mexco; n Huttunen et al. (2006) Norway and n Elason and Storre (2006) Sweden. 5 Note that the trade proxy used by the OECD (2005) and Kletzer (200) s based to overestmate the adjustment costs of workers dsplaced by globalzaton due to the solely concentraton on the mport-competng manufacturng sector. As s demonstrated n secton 4, globalzaton also leads to dsplacement n export-orented sectors (be t manufacturng or servces), sectors n whch the qualfcaton profle of workers s hgher and thus the adjustment costs due to globalzaton expected to be lower compared to the mport-competng manufacturng sector. Therefore, not only the OECD dsplacement data referencng to mport competng, but as well to all sectors s used for comparson reasons. 6

7 deed n lne wth wage cuts or unemployment. Usng for the purpose of consstency the OECD numbers, 52.9% of reemployed workers experence wage cuts, whle 42.7% are stll or agan lookng for a job. Followng the above defnton, approxmately 73% of the dsplaced workers are worse off two years after dsplacement whle approxmately 27% are even or better off. Only lookng at hgh-nternatonal-competton manufacturng ths rato ncreases slghtly to 77-to-23%, a rato equvalent to the adjustment costs of trade dsplaced workers n the US two years after dsplacement wthn the tme perod Yet, dsplaced workers n the US--generally known as havng a more flexble labor market than contnental Europe--experence less unemployment (36.6%), but more wage cuts (64.0%). 6 Accordngly, as Irwn (2005) suggests, the plght of dsplacement should not be trvalzed. Stll, the data shows as well that the general percepton of dsplaced workers as losers of globalzaton s not necessarly true. Many fnd a new job, some even to equal or better salary. Last but not least, the thrd common observaton concerns the rsk factors. As suggested by theory, the socodemographc characterstcs age and human captal are together wth macroeconomc factors such as the busness cycle and the general condton of the labor market ndeed decsve for the ndvdual adjustment costs/opportuntes after dsplacement. Yet, as footnote four suggests the research gap conssts of the fact that none of these studes nclude the adjustment costs of Swss workers dsplaced by globalzaton. As mentoned n the ntroducton, these could be sgnfcantly lower compared to other Western economes as the adjustment costs of formerly unemployed workers n Swtzerland tend to be consderably lower than the adjustment costs of dsplaced workers n Europe and the US. Accordng to Sheldon (999) the share of formerly unemployed workers n Swtzer- 6 For detals compare Kletzer (200). 7

8 land sufferng two years after layoff from ether unemployment or negatve wage cut (decles declne) les n between rounded 43% (26.% unemployed, 7.3% ncome declne) regardng the lad off cohorts n between 984 and 987, rounded 45% (30.4%, 4.4%) regardng the lad off cohorts n between and rounded 54% (39.7%, 4.0%) regardng the lad off cohorts n between , the begnnng of the Swss recesson years n the 90s. Thus, for these three tme spans the looser/non-looser rato for formerly unemployed n Swtzerland amounts to 43-to-57%, 45-to-55% or 54-to-46%, whereas even the hghest rato s consderably lower compared to the 77-to-23% rato of the trade dsplaced workers n European and U.S. mport competng sectors. In fact, due to the lemons problem outlned n the ntroducton ths dfference could even be more pronounced n case of globalzaton dsplaced workers n Swtzerland. Thus, havng hopefully excted some curosty the next step wll be to see f the latter ndeed s true. 3. Methodology and Estmaton Model 3.. Case Studes Followng Storre (993) the analyss of the adjustment cots of workers dsplaced by globalzaton s conducted based on case studes. Case studes have the advantage that the reorganzaton s depcted holstcally, key processes are better understood and the results can be underlned wth specfc examples. The selecton of the case studes was done accordng to four crtera. Frst, a key trgger of the reorganzaton had to be globalzaton. Second, there must have been a mass-layoff assurng a bg enough sample sze. Thrd, to ease data collecton only reorganzatons n the last four years were consdered and fourth, reorganzatons n both mport-competng and export orented ndustres had to be ncluded. Based on ths crtera sx reorganzatons were chosen ncludng the frms Bombarder (ralway vehcle manufacturng), Calda (apparel), Cba and Clarant (both specalty 8

9 chemcals), Lego (toys) and Roche (pharma). Secton four gves an overvew of the data used. Data collecton tself was realzed usng a standardzed questonnare. The frm data, ncludng all dsplaced workers, was collected through frm ntervews, whle the ndvdual respectvely the worker data was collected by a wrtten and anonymty assurng poll n the three offcal country languages German, French and Italan. Unlke the frm data the ndvdual data ncludes a sub-set of the dsplaced workers due to a response rate below 00%. 7 The frm data ncludes all sx above mentoned frms, whle the ndvdual data ncludes due to n some cases more restrctve frm polces only workers dsplaced by Calda, Bombarder and Lego. Accordngly the resultng observatons wll be representatve for the examned samples of the case studes and not for all dsplaced workers n Swtzerland. Therefore, an addtonal analyss based on survey data was consdered. Unfortunately, such data s currently not avalable for Swtzerland. 8 Thus, future research based on Swss survey data--once avalable--wll defntely be a valuable completon of the conducted case study approach. However, be aware that the adjustment costs mght be overestmated f the chosen survey sample does not nclude the share of dsplaced workers fndng a new job n the dsplacng frm tself. 9 On mportant take away of the here conducted case study approach s--as wll be showed n secton 5--that the share of nplacements of the announced dsplacements can be szable. 7 The actual response rate led wthn 20-3%. Knowng that n one-tme wrtten polls wthout further nqures the response rate seldom amounts over 20% ths s a good rate (Porst, 200). 8 The needed couplng n between the Swss populaton survey (SAKE) and the Swss frm survey (BZ) s due to a mssng algorthm currently not possble. Yet, to analyze the adjustment costs of workers loosng ther job n restructurng frms (e.g. dsplacement of 0% n a certan year) actve n partcular mport and export ntensve sectors ths couplng s premse. 9 Assumng ratonal frms nplaced workers are expected to be endowed wth relatvely well-demanded attrbutes. Thus the share of dsplaced workers fnally beng outplaced s expected to nclude more lemons than the overall dsplaced populaton. The results n secton 5 underlne ths. 9

10 3.2. How to Measure What The emprcal strategy followed n ths paper n order to answer the outlned research questons n secton can be set up n three steps. Frst, to answer what happens to the affected workers durng reorganzaton the dsplacement framework and process s analyzed based on cross-sectonal comparson of frm data. Table gves an outlne of the crtera and data consdered. The crtera tme of reorentaton s defned as tme span n between Advance Notce and the end of the notce perod. The rest of table should be self-explanatory. Table : Crtera to Analyze Dsplacement Process and Framework Second, to answer f dsplaced workers fnd a new job and, f yes, where and at what prce, the employment fate of dsplaced workers s analyzed based on a cross-sectonal analyss of worker data. Table 2 gves an outlne of the crtera and data consdered. Table 2: Crtera to Analyze Employment and Wage Effects after Dsplacement The crtera reemployment and employment dffer n the sense that a worker reemployed after dsplacement must not be employed at the tme of the poll (e.g. repeated unemployment). The ndustry of employment s defned on the Swss two-dgt ndustral classfca- 0

11 ton. The wage effect results from the rato new to old wage. Thus, n dstncton to Jacobson, LaLonde and Sullvan (993) the wage effect on the employed s not mxed wth the ncome effect of the unemployed dsplaced workers. There s a good reason for ths approach. Frst, by mxng the two effects t cannot be dstngushed f a worker earns less for hs work or for beng unemployed. Second unlke wages, unemployment payments are determned by poltcal and not by market forces. The resultng ncome cuts due to unemployment are thus not only poltcally accepted but as well ex-ante known (Swtzerland 20-30% of the last wage). Thrd, to answer whch of the dsplaced workers run a hgh rsk to lose from dsplacement n the wake of globalzaton an econometrc analyss based on pooled worker data s conducted n order to dentfy the rsk factors concernng unemployment and wage cuts. Secton 4 descrbes the estmaton method n detal Econometrc Model As done n prevous research (compare secton 2) those dsplaced workers who at the tme of the survey ether experence a wage cut or unemployment are consdered to belong to the losers of globalzaton. Thus the queston of nterest s whch factors are lnked wth a hgher probablty respectvely rsk to be ether affected by unemployment or a negatve wage cut. Gven the bnomnal character of the depended varable Unemployment [y ( = unemployed, 0 = other)] and the ordnal character of the dependant varable Wage Effect [y ( = negatv, 2= neutral, 3 = postv)] the rsk to become unemployed s analyzed wthn on a logt model whle the rsk of a experencng a wage cut s analyzed wthn an ordered logt model. 0 Both models can be gven n a latent-varable nterpretaton. Ths n- 0 To test the monotony assumpton of the ordered logt model the wage effect was as well analyzed wthn a multnomnal logt model. The resultng estmates showed however, that the here avalable sample s too small for the latter model to result n statstcally secured data.

12 terpretaton dstngushes n between the observed bnary or ordnal outcome, y, and an underlyng contnuous unobservable (or latent) varable, y *. Based hereupon the Unemployment Estmaton (logt model) reads as follows: y * = α + β ' x + ε, *, wenn y > μ, y = * 0, wenn y μ, (3.3.-) whereas: y * = unemployment probablty/potental of person, y = (unemployed), 0 (other), α = constant, β = column vector of parameters to be estmated, measurng the nfluence of varables n x, x = column vector of all n t (before dsplacement) und t- (after dsplacement) captured, potental nfluencng factors of a workers employment fate, μ = a not closer defned threshold whch s exceedance leads to unemployment, = ndvdual/observaton unt ( =, 2,..., n), whereas n stands for the sample sze, ε = error term. Thus, t s only observed whether the latent varable s exceeded and becomes unemployed or not. The dentfcaton of the latent varable requres that we fx ts scale by placng a restrcton on the varance of the error term ε. By settng σ = π 2 / 3 and respectvely ε ~ L(0, π 2 /3) the followng logt model (3.3.-2) can formally and graphcally be derved σ from (3.3.-). α μ + β ' x π = P y* > μ) = Λ = σ + e π = P * μ) = π, ( α μ+ β ' x σ 0 ( y, (3.3.-2) whereas: π = probablty that a n t dsplaced worker s unemployed [y=] or not [y=0] n t-, Λ = standard logt dstrbuton functon. ƒ = standard logt densty functon. The followng dervaton of the two models s based on Cameron and Trved (2009) and Wnkelmann and Boes (2006). 2

13 3 The parameters of the logt model are estmated usng maxmum-lkelhood. 2 The correspondng lkelhood functon s: The Wage Effect Estmaton (ordered logt model) reads - followng the same procedure - as follows. whereas dfferent to (3.3-) y= (negatve wage effect), 2 (neutral wage effect), 3 (postve wage effect), x= column vector of all n t (before dsplacement) und t- (after dsplacement) captured, potental wage nfluencng factors, γ= a not closer defned threshold, the exceedance γ goes n lne wth a change from a negatve to a neutral wage effect whereas the exceedance of γ 2 goes n lne wth a change from a neutral to a postve wage effect. By settng σ = π 2 / 3 respectvely ~ L(0, π 2 /3) the followng ordered logt model (3.3.-5) can formally and graphcally be derved from (3.3.-4). whereas dfferent to (3.3.-2): π = probablty that a n t dsplaced worker experences a negatve [y=], a neutral [y=2] or postve [y=3] wage effect n t-. The maxmum lkelhood functon for the estmaton of the parameters reads as follows: 2 The structure parameters α and β are undentfable. Estmated are the ntercept (α-μ/ σ) and the coeffcent (β/ σ). (3.3.-3). ) ( y y n L = = π π (3.3-4), 0,,, 0,,, 0,,, ' 2 * 3 2 * 2 * * > = < = = + + = other y f y other y f y other y f y x y γ γ γ γ ε β α σ ε, ' ) * ( ' + = = Λ = σ β α γ σ β α γ γ π x e x y P (3.3.-5), ) * ( y P π π γ π = > =, ' ) * ( ' = = Λ < = σ β α γ π σ β α γ γ π x e x y y P (3.3.-6). ) ( 3 y j j j I L π = = =

14 These two estmaton models are startng pont for the econometrc analyss n secton 5. In order to get a bg enough sample to estmate ML, the worker samples of Bombarder, Calda and Lego are --of course controllng for the dfferent framework of the case studes- -pooled. Observatons wth mssng values are foreclosed. Ther estmaton by multple mputaton s not pursued due to ther small number and the case study character. 4. The Data: Mass-Layoffs, Trggers and Dsplaced Workers As already mentoned n secton 3, the data used conssts out of sx case studes wth several thousands observatons n the frm sample and several hundred observatons n the worker sample. Table 3 gves an overvew of the case studes. Table 3: Data Overvew As depcted n table 3 the case studes embrace dfferent knds of reorganzatons whle the trgger has throughout a close lnk to globalzaton. In order to stay compettve wth respect to the ncreasng competton from Asan producers respectvely n Asa productng compettors, the toy manufacturer Lego outsourced the whole producton (ncl. captal stock) to the Czech Republc, the apparel producer Calda decded to close ts cuts dvson and the specalty chemcal manufacturer Cba and Clarant automatzed ther textle colors producton. In case of Bombarder and Roche the lnk to globalzaton mght, at least on 4

15 frst sght, be somewhat less obvous. The ralway vehcle manufacturer Bombarder closed one of two producton stes n Swtzerland n the wake of the ntroducton of GATS, lberalzng domestc buyng markets thereby leadng to overcapactes and sharper competton. Last but not least, Roche fostered ts specalzaton strategy strongly n order to stay on top n the hghly compettve global nnovaton market thereby completely refocusng ts pharma busness. A more n depth descrpton of the case studes (e.g. hstorcal outlne, frm statements) goes beyond the scope of ths paper, but can be found n Wyss (2009, p. 7-5). 3 Thus, n the wake of globalzaton Bombarder dsplaced 387, Calda 93, Cba 320, Clarant 299, Lego 342 and Roche 99 workers. All of these workers are ncluded n the frm sample. As noted n secton 3, ndvdual data could not be collected for all case studes due to dfferent nternal polces. In case of Bombarder (S=20), Calda (S=9) and Lego (S=06) ndvdual data s avalable for a random sample of 20-30% of the dsplaced workers. Ths data only ncludes workers havng looked for a new job after beng dsplaced. Workers freely wthdrawng from the labor market--be t due to pregnancy, workng partner, fulltme advanced tranng or (voluntary early) retrement--were removed from the sample as there s nothng known regardng ther potental future chances or dffcultes on the labor market. In addton, observatons wth mssng values were removed from the worker sample. Ther calculaton through multple estmaton s passed as ther number s relatvely small resultng nto a large enough remanng sample and the case study character of ths paper. 4 For the econometrc analyss the sample of the unemployment estma- 3 Ths study s wrtten n German. On demand, the author can send an outlne n Englsh to nterested readers. 4 From total 244 observatons 27 were removed from the worker data due to a freely wthdraw from the labor market resultng n remanng 27 observatons. From these observatons maxmal 3 were removed n the descrptve analyss whereas n the econometrc analyss dependng on the research queston 2 (unemployment) up to 33 (wage effect) observatons had to be removed due to mssng values caused by non response n the poll. 5

16 ton amounts to 96 observatons, whle the sample of the wage effect estmaton counts 53 observatons. 5. Dsplaced by Globalzaton: Analyss of Labor Market Effects Secton 5 s structured n a descrptve and econometrc analyss, whereas the research queston one and two are due to ther unvarate nature part of the former, the research queston three s due to ts multvarate nature part of the latter. Both sectons are focused on the man results of the analyss. A more n depth analyss can be found n Wyss (2009). 5.. What Happens Durng and After Dsplacement In a frst step, the fate of the dsplaced workers durng the reorganzaton s of nterest. How s the dsplacement conducted? Whch employment effects are yet observed durng dsplacement? Accordng to the depcted crtera n table (p. 0) the cross-sectonal descrptve analyss of the frm data can be summarzed n three key observatons. Frst after beng nformed of the upcomng dsplacement, affected worker don t lose ther job mmedately. They have a longer tme span for a professonal reorentaton at ther dsposal. Table 4 shows that whle all frms used an advanced notce, some dd so rather at short notce (e.g. Calda). Yet, n the end--amongst others due to an extenson of the notce perod as socal-compensaton measure--dsplacement began n all case studes wth a delay of mn. 4 to max. 9 months wearng on for mn. to max. just under 4 years. Second, the here observed frms took numerous measures (e.g. compensaton of potental wage cuts and moblty costs, ntal ad)--many of them gong beyond ther legal dutes (e.g. nplacement thanks due early retrement of non affected workers)--to cushon the socal costs caused by globalzaton. Table 4 gves a bref overvew. Thus, the crtc of dsplacng frms conductng socal free-rdng doesn t appear to be justfable n the here observed case studes. 6

17 Table 4: Dsplacement Framework Thrd, dsplacement should not be equated wth gven notce and gven notce not wth unemployment. Graph shows that Graph shows that for 20-80% of dsplaced workers does not go n lne wth receved notce, but wth nplacement (-60%), (frm fnanced early) retrement (4-64%) or gven notce (2-0%). In the reverse concluson, dsplacement ndeed went n lne wth gven notce for approxmately 20-80% of dsplaced workers. Yet, at the end of the notce perod by the majorty over 2/3 (below /3) of dsplaced workers had--accordng to the frm data--a (no) follow-up soluton. Graph : Employment Effects durng Dsplacement 7

18 5.2. Adjustment Costs of Globalzaton Dsplaced Workers Regardng unemployment, ths frm estmate seems compared to the n secton 2 descrbed adjustment costs observable n the US and other European countres promsng. But let s not rush and frst have a look at the employment and wage effects after dsplacement based on the worker data of Bombarder, Calda and Lego. Followng the depcted crtera n table 2 (p. 0) the cross-sectonal descrptve analyss of the workers data can-- agan--be summarzed n three key observatons. Frst, the vson of globalzaton-dsplaced workers as losers of globalzaton does not necessarly reflect realty. For around half of dsplaced labor dsplacement s no threat. Table 5 shows that -2 years after dsplacement approxmately n between 70% and 92% of job-seekng dsplaced labor have found a new job, whereof approxmately 60-80% wth postve or neutral wage effect. Table 5: Employment and Wage Effects after Dsplacement The comparson of the reemployment wth the employment quote shows that the share of reemployed workers that has lost ts job agan at the tme of the poll s wth %-Pont n case of Lego an Bombarder small. Whle a majorty of approxmately 60-90% of workers found ther new job n the ntal ndustry, roughly 0-40% changed sector n order to get reemployed leadng to some tertarzaton. 8

19 Second, these numbers show as well that for a not to trvalze number of dsplaced workers adjustment costs can be substantal. In the here analyzed reorganzatons, -2 years after dsplacement yet approxmately 30-40% of workers were confronted wth a negatve wage effect whle roughly 0-30% of dsplaced workers were affected by longterm unemployment. Note that despte of the extensve socal-compensaton measures depcted n table 4 an average of 45% of all dsplaced workers declared not havng been supported by ther frms durng the dsplacement perod. Ths observaton could be due to a breach of confdence or n the words of human resource theory a breach of the nner socal contract. Thrd, convertng these numbers to the loser-non-loser (L-n-L) rato--ntroduced n secton 2 wth regard to the emprcal results of Kletzer (200), OECD (2005) and Sheldon (999)--the followng rounded L-n-L ratos result for the here analyzed case studes: 50-to- 50% n case of Bombarder and Calda and 38-to-62% n case of Lego. Now, compared to the L-n-L ratos n Europe (OECD, 2005) and the US (Kletzer, 200) of approxmately 80- to-20% n mport competng sectors, the correspondng Swss rato n these three net mportng ndustres are--as already antcpated n the ntroducton--consderably lower. The reason for these lower adjustment costs can be multple and need to be analyzed n a study of ts own. Maybe the Swss openness leadng to new job possbltes n other frms and ndustres combned wth ts flexble labor market and strong socal net could explan some of the dfference n adjustment costs. Now, compared to the L-n-L rato of the formerly unemployed n Swtzerland the pcture s not so clear. The expected Gbbons-Katz effect--that dsplaced workers should perform better than formerly unemployed due to an expected smaller share of lemons--cannot be observed clearly. In the case of Lego the L-n-L rato of 38-to-62% s somewhat smaller 9

20 whle n the case of Bombarder and Lego the L-n-L rato of 50-50% s compared to the correspondng ratos of formerly unemployed workers n between at least not defnte hgher. 5 On one hand, the close results n between dsplaced and formerly unemployed workers n Swtzerland underlne the plausblty of the results of the here analyzed case studes. On the other hand, theory would have expected globalzaton dsplaced workers to perform somewhat better as formerly unemployed workers due to the lemons effect proposed by Salant (977) and observed by Gbbons and Katz (99). Yet, the somewhat mssng Gbbons-Katz effect can to some extent be explaned. Frst, n case of Bombarder and Calda the share of nplacements was wth 20% respectvely 60% relatvely hgh compared to the % share n case of Lego. Assumng that frms have a tendency to keep the good workers, the fnally outplaced workers are n case of Bombarder and Calda expected to nclude more lemons compared to Lego. Assumng that potental employers were aware of ths stuaton, fndng a new job for former Bombarder and Calda workers mght have been more dffcult compared to former Lego workers. Second, due to the fact that Bombarder, Calda and Lego represent dsplaced workers from rather labor-ntensve actvtes (producton) the case study selecton of ths study mght overdraw the adjustment costs of globalzaton dsplaced workers. As the Roche case study depcts, the latter can as well nclude workers dsplaced from more skll ntensve actvtes. Last but not least, the fact that the case study results are unlke the results from Sheldon (ncludng all unemployed workers n Swtzerland) based only on a sample of globalzaton-dsplaced workers mght lead to some overestmaton of the loser share due to the exstence of confdence ntervals. 5 L-n-L rato of formerly unemployed after year: 42-to-58% (984-90), 49-to-5% (990-93): after 2 years: 43-to-54% (984-87), 42-to-58% ( ), 54-to-46% ( ). 20

21 Last but not least the comparson n between the L-n-L rato n between globalzaton dsplaced and formerly unemployed workers results n one further nterestng observaton. By defnton, smlar L-n-L ratos must not be caused by smlar effect. As showed n secton 2, they are the sum of the share of workers experence negatve wage effects or unemployment. The comparson of these sngle effects n between dsplaced and formerly unemployed workers n Swtzerland shows that n relatve terms the former loose more frequent due to a negatve wage effect whle the latter loose more frequent due to (repeated) unemployment. Whle after -2 years the share of globalzaton dsplaced workers experencng a negatve wage effect s located n between rounded 20-35% the correspondng range for formerly unemployed workers amounts to 0-20%. Lookng at the other sde of the medal, the correspondng unemployment share n case of globalzaton dsplaced workers s located n between rounded 0-30% whle amountng to 25-40% n case of formerly unemployed workers. Thus, compared to formerly unemployed workers globalzaton dsplaced workers seem--at least n the here analyzed case studes--to be more often harmed by wage cuts than by unemployment n case of Swtzerland Globalzaton and Dsplacement: The Rsk Groups After havng descrptvely analyzed the adjustment costs of globalzaton-dsplaced workers, the group of workers wth a potentally hgh probablty to be harmed ether by wage cuts or unemployment needs to be dentfed. Ths s done by runnng the mcroeconometrc model descrbed n secton 3.3 (p.-3). Concrete the probablty of a negatve, neutral or postve wage effect s estmated based on the ordered logt model descrbed n (3.3.-5) and the maxmum lkelhood functon depcted n (3.3.-6) whle the unemployment probablty s estmated based on the logt model descrbed n (3.3.-2) and the maxmum lkelhood functon depcted n (3.3.-3). 2

22 The descrpton of the unemployment and wage effect sample by mean, standard devaton, mnmum and maxmum specfcaton of the estmated varables can both be found n appendxes -2. Most of the explanatory varables enterng the estmatons are based on the theoretcal outlne n secton 2: age enters drectly, sklls through the proxy formal educaton (UNCTAD: SEC I, SEC II and TER) and occupatonal group (laborer, clerk, unversty graduate), specfc human captal ndrectly through the varables senorty and employment level and the loss of frm, ndustry or sector rents through the varables change of frm, ndustry or sector. 6 In addton to these theoretcally motvated varables the varables job search duraton and employment duraton enter the estmaton(s). The motvaton here s an emprcal one as prevous research shows that a relatve long job search s postvely related to hgher adjustment costs whle a longer wage cuts are negatvely related to longer employment duraton. Last but not least, the estmaton ncludes varous varables controllng for some dscrmnaton (gender, martal status, natonalty) and for the dfferent framework of the three analyzed case studes (frm dummy, labor market condton durng dsplacement and tme perod snce dsplacement). The labor market condton durng dsplacement s modeled usng the adjusted cantonal unemployment quote (e.g. n case of Calda the one from the canton Lucerne). Ths approach allows controllng for the fact that an unemployment quote of X% n a structural weak canton can be ndcator for a good labor market stuaton whle n a structural strong canton the same quote can ndcates a bad labor market stuaton. Of course, the adjustment costs are expected to be postvely correlated wth a bad labor market stuaton. The sample descrptons show further that all but two explanatory varables are categorcal varables as the 6 Frms nvest more n full-tme workers. Accordngly we expect them to have a hgher endowment wth specfc human captal than part-tme workers. Note as well that due to perfect predcton the category senorty s defned broader n the unemployment estmaton. 22

23 questons wthn the poll were formulated as easy as possble to assure a hgher rate of return. Accordngly, these categorcal varables were recoded n dummy varables (=true, 0=not true), whereas the mean of a dummy varable descrbes n each case the share of workers wth the dummy characterstc. Note that due to perfect collnearty only a subset of n- dummy varables belongng to the same varable wll be estmated. The left out dummy varable serves as reference. Fnally, the three control varables need to be estmated n separate estmatons due to multcollnearty. Appendxes 3-4 show the results of the unemployment and wage effect estmaton. In order to mprove the nterpretaton of the non-lnear models the probablty of unemployment such as of the dfferent wage effects was as well estmated for the average person n each sample. 7 Ths allows comparng the unemployment probablty of a low sklled worker not only to the correspondng probablty of a hgh sklled (reference category), but as well to the average worker n the sample. 8 Ths comparson s eased to the depcted MM-statstc n the estmaton outputs. The MM-statstc, known as well as the Segregaton Index from Duncan and Duncan (955) 9, expresses the dfference of the p(y)-dstrbuton n between each character and the average person n percentage ponts. The expected probablty E[p(y)] s calculated based on logt (3.3.-2) and ordered logt equatons (3.3.-5) n secton Thus, all varables are estmated n devaton from ther mean. 8 Note that n non-lnear models the probablty dstrbuton of the average person s not equal to the correspondng dstrbuton of the mean n the sample f[e(x)] E[f(x)]). Ths explans the dfference n the expected unemployment probablty of the average worker n appendx 4 and the mean of the dependng varable unemployed n appendx II. 9 However, not Duncan and Duncan but Schutz (95) has developed the MM-statstc n order to measure ncome dstrbuton. The MM-statstc s calculated as sum of the absolute dfference n between the probablty dstrbuton of each varable compared to the one of the average person dvded by 2. Be aware that the MM-statstc of the varables can not be compared one to one as the categores are not measured n the same unt (e.g. age n years vs, educaton n graduaton degree). 23

24 The estmaton output show that globalzaton and structural change are foremost a threat for old, low sklled worker. Unlke n case of the (lower) adjustment costs, the workers at rsk losng from dsplacement n the wake of globalzaton are the same as n other OECD countres. Whle older dsplaced workers run a hgh rsk becomng unemployed, dsplaced workers wth a low formal educaton run a hgh rsk of both a negatve wage effect and unemployment. 20 Appendx 3 shows that the probablty of a low sklled worker to experence a negatve wage effect amounts to 82.2%, whle the correspondng rsk for a (medum) hgh sklled worker amounts to (3.3%) 3.4%. Ths statstcally sgnfcant rsk s roughly 50%-ponts hgher compared to an average dsplaced worker (MM-statstc) and roughly sx tmes hgher compared to hgh sklled dsplaced workers. Wth the roughly seven-fold rsk of becomng unemployed compared to hgh sklled workers, low sklled workers can n lne wth theory ndeed be expected to belong to the mportant losers of dsplacement by globalzaton. Compatble hereto, all dsplacng frms gave to protocol that after dsplacement they shfted ther labor demand towards hgher sklled labor. However, wth respect to unemployment the key rsk group are older dsplaced workers. As expected by theory (short amortzaton tme n combnaton wth senorty wages) the probablty of above 55-years old to become unemployed after beng dsplaced by globalzaton amounts to 22.6%. As the MM-statstc shows, compared to the average dsplaced worker ths s a statstcally sgnfcant 2%-ponts hgher unemployment rsk. As comparson, from the workers n the age group of years (below 25-45) only 2.6% (0.5%) are expected to become unemployed. In a nutshell, the older and lower sklled the hgher the rsk becomng unemployed, the lower the sklls the hgher the rsk of experencng wage cuts. 20 Note, the statstcally nsgnfcant effect of the skll proxy occupatonal group s due to ts far less precse defnton of sklls compared to formal educaton not surprsng (bgger measurement errors). 24

25 Besdes age and sklls, a hgh senorty, a long job search, a change of ndustry and a bad labor market stuaton ncrease n lne wth theory and prevous research the adjustment costs of dsplacement. There s as well some evdence for dscrmnaton. Let s start from the top of the estmaton outputs and move down. Hgh senorty (hgh endowment wth specfc human captal 2 ) has a statstcally sgnfcant correlaton both wth a negatve wage effect and unemployment. A dsplaced worker wth a senorty of over 0 years has an expected probablty for a negatve wage cut of 44.5%, roughly the two-fold probablty of workers wth shorter senorty. Wth regard to unemployment, senorty s not such a problematc characterstc. The expected probablty of dsplaced workers wth hgh senorty s wth 2.3% roughly %-pont hgher compared to workers wth lower senorty. By contrast, wth an expected unemployment probablty of 4.% a long job search (above 9 months) statstcally sgnfcant ncreases the adjustment cots clearly. 22 As expected earler, as well the change of ndustry can result nto the negatve wage effect. The estmaton outputs show some evdence for some dscrmnaton. Foregners wth Swss resdency run a.2%-pont statstcally sgnfcant hgher rsk than the average person to become unemployed, whle border crossers seem to be more affected by a wage cuts. However, once the estmaton s controlled for the fact that border crossers mght suffer wage cuts due to reemployment n Germany or France, both countres wth lower wage levels than Swtzerland, ths correlaton s not any longer statstcally sgnfcant. Furthermore, n case of the hgher unemployment probablty of foregners not only dscrmnaton, but as well language problems could be decsve. Last but not least, let s have a look at the case study 2 A further not yet mentoned explanaton could be a relatve low employablty due to the long absence on the market of job seekers. 22 The based on prevous research unexpected negatve correlaton n between wage and a job search above 3 months s statstcally nsgnfcant and could amongst other be caused by an endogenty problem (unclear cause-effect relaton). It could be possble that some of the workers know already very early that--n order to get reemployed--they need to accept a wage cut. Not acceptng ths stuaton n the begnnng they extend ther search. Takng ths perspectve, the negatve wage effect would be cause for the long job search and not vce-versa. 25

26 control varables. Whle none of them s statstcally secured correlated wth the wage effect, the contrary s true n case of the unemployment probablty. The estmaton output shows that workers dsplaced by Bombarder (expected unemployment probablty 2.3%) run compared to workers dsplaced by Lego (expected unemployment probablty 0.2%) a statstcally sgnfcant hgher rsk of becomng unemployed. As already noted n secton 5.2 ths could be due to the hgher lemon (nplacement) share n case of Bombarder compared to Lego. The calculaton of the average margnal effect of the only metrc varables unemployment level and tme snce end of dsplacement perod accordng to Bartus (2005) show that especally that the former matters by far more than the latter regardng adjustment costs. Whle a % ncrease of the tme passed snce the dsplacement perod leads to a 0.23% hgher unemployment probablty, a % ncrease of the adjusted cantonal unemployment quote leas to a 4.32% hgher rsk of becomng unemployed. Ths strong nfluence of the labor market condton on the adjustment cots s not further surprsng. However, gven the current economc crss wth the constantly ncreasng unemployment, t s nether not comfortng. 6. Concludng Remarks In the openng of ths paper three research questons were stated: What happens to the affected workers durng the reorganzaton, do they fnd new jobs and, f yes, at what prce and who are the potental losers from dsplacement by globalzaton. Based on the fndngs of ths paper these questons can be answered as follows: Frst, after beng nformed of the upcomng dsplacement workers don t lose ther job mmedately, but have at least several months up to several years tme for ther professonal reorentaton. In addton, dsplacement should not be equated wth gven notce and 26

27 gven notce not wth unemployment. Already durng the dsplacement perod many workers fnd a new job wthn or outsde the dsplacng frm. Second, the vson of globalzaton-dsplaced workers as losers of globalzaton does not necessarly reflect realty. Whle the plght of dsplacement should by no means be trvalzed, ths study shows that many dsplaced workers fnd a new job to equal or better salary. However, as expected due to prevous research dsplacement by globalzaton s for some workers as well closely lnked wth hgh adjustment costs, be t n form of wage cuts be t n form of long-term unemployment. Interestngly, ths study shows that n case of Swtzerland the share of globalzaton losers seems to be consderably lower than n other European countres and the US. Last but not least, the emprcal fndngs ndcate--n lne wth prevous research for other countres--that dsplaced old and low sklled workers are especally at rsk beng harmed by dsplacement n the wake of globalzaton. Whle the over 55-year-olds have a sgnfcant hgher rsk stayng unemployed than the average worker, low sklled have a sgnfcant hgher rsk for both earnng losses and permanent unemployment compared to hgh sklled. Based on these results, polces that drectly support the labor market rentegraton of dsplaced old and low sklled workers seem most promsng n mnmzng the labor adjustment costs of globalzaton. The contrary seems to be true for polces that try to delay structural change snce they prevent the potental wnners among trade-dsplaced workers to take advantage of the job opportuntes globalzaton offers them. 27

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30 Appendx I 30

31 Appendx II 3

32 Appendx III 32

33 Appendx IV 33