Is destruction creative? Firm closure and worker exit

Worker displacement due to firm exit is commonly associated with lower worker income and higher odds of unemployment. However, little is known about the role of the firm – in particular, why it stops employing – and how this determines worker outcomes. Accordingly, we classify firm exits into four types (restructures, insolvency, mergers and acquisitions, and clean exits) and compare worker outcomes (wages, income, re-employment) post displacement. Finally, we investigate the extent to which workers move to more productive firms and hence if firm exit raises aggregate productivity via the reallocation channel.

David Hansell is an economist working for the Australian federal government and a PhD candidate in economics at Crawford School of Public Policy, ANU. David specialises in using large administrative data on workers and employers to inform public policy. He has published peer-review research on topics such as productivity, business dynamics and the labour market.