Coping with job loss: evidence from military base closures

• Published date: 01 July 2024
• Author: Matz Dahlberg,Linna Martén,Björn Öckert
• Date: 01 July 2024
• DOI: http://doi.org/10.1111/sjoe.12557

Scand. J. of Economics 126(3), 440–464, 2024

DOI: 10.1111/sjoe.12557

Coping with job loss: evidence from military

base closures

Matz Dahlberg†

Uppsala University, SE-751 20 Uppsala, Sweden

matz.dahlberg@ibf.uu.se

Linna Mart´

en

Swedish Institute for Social Research, SE-106 91 Stockholm, Sweden

linna.marten@sof‌i.su.se

Bj¨

orn ¨

Ockert‡

Institute for Evaluation of Labour Market and Education Policy, SE-751 20 Uppsala, Sweden

bjorn.ockert@ifau.uu.se

Abstract

We examine how workers adjust in response to an unexpected job loss. Using the closure

of military bases in Sweden, we f‌ind that displaced workers experience permanent income

losses and immediately adjust along two main channels: regional and sector mobility. Displaced

military workers are more likely to move to another municipality, start commuting, and change

sectors. We also f‌ind that workers with mobility restrictions are less likely to change regions

and they exhibit lower earnings in the longer run, a result that might help to explain some of the

permanent income losses found in the literature.

Keywords: Defense cutback; displaced workers; plant closure; unemployment

JEL classif‌ication:H56; J63; J65

1. Introduction

Job reallocation is a natural consequence of economic development and a

well-functioning labor market, where more productive companies and plants

grow at the expense of the less productive. Yet, as noted by several scholars

(e.g., Eliason and Storrie, 2006; Huttunen et al., 2011), there are two sides

to the story. While reallocation is benef‌icial for the economy as a whole,

it may be detrimental for individuals directly affected by f‌irm downsizing

and closures. For example, several studies have found that displaced workers

†Also aff‌iliated with IFAU, CESifo, IEB at University of Barcelona, Uppsala Center for Labor

Studies, and Uppsala Center for Fiscal Studies.

‡Also aff‌iliated with Uppsala University and Uppsala Center for Labor Studies.

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution

and reproduction in any medium, provided the original work is properly cited.

M. Dahlberg, L. Mart´

en, and B. ¨

Ockert 441

experience costly spells of unemployment and permanent earnings losses (see,

for instance, Stern, 1972; Jacobsen et al., 1993; Couch and Placzek, 2010;

Lachowska et al., 2020), as well as deteriorated health (see, for instance,

Sullivan and von Wachter, 2009; Brand, 2015; Black et al., 2015).

While the labor market effects of plant closures are well understood,

we know less about how affected workers cope with the negative shock

of losing their job and how they adjust to the new situation. Arguably,

the most important channels of the adjustment process involve mobility

between regions and/or occupations/sectors. Basically, there are three different

channels through which displaced workers are able to adjust: (1) move to

a new local labor market or start commuting; (2) move to a new sector or

occupation; or (3) leave the labor market and rely on transfers from the social

security system.

The adjustment process is likely to differ between workers. Theory

informs us that individuals differ in terms of their likelihood of f‌inding a

job (as a function of, for instance, cognitive and non-cognitive skills, and

past labor market experience) and face different mobility restrictions (as

a result of aspects such as age and family situation).1A fairly recent and

so far rather limited set of studies shows that the long-lasting negative

effects on labor market outcomes conceal quite a bit of heterogeneity. For

instance, job loss has been found to be less costly for highly educated

workers (von Wachter and Handwerker, 2009), for workers with high

cognitive and non-cognitive skills (Izadi and Tuhkuri, 2022; Seim, 2019),

for workers with an extroverted personality (Izadi and Tuhkuri, 2022), for

younger workers (Seim, 2019; Gulyas and Pytka, 2019), and typically also

for those with lower tenure (Kletzer, 1989; Carrington, 1993; Jacobsen

et al., 1993). However, it is less clear why certain groups of workers seem

to be better able to cope with job losses than others and to what extent this

can be explained by their propensity to move between local labor markets

and/or occupations.

This paper adds to the displacement literature by examining how

individuals adjust to an unexpected job loss. More specif‌ically, we examine

how military personnel – who were made redundant when several Swedish

military bases were closed down following the end of the Cold War – cope

with job loss. The case under study is interesting for at least two reasons.

First, as the Swedish Armed Forces (SAF) has monopsony power in the

market for military jobs, the demand for military personnel dropped sharply

in the municipalities in which bases were closed down. Thus, individuals

who wanted to continue working in the military sector had to move or start

commuting. If they wanted to stay, they had to change sector or occupation.

1For a brief summary of theoretical predictions, see, for instance, Huttunen et al. (2018).

c

2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨

oreningen

f¨

or utgivande av the SJE.