Consequences of job loss for routine workers

Abstract

If displaced in mass layoffs, routine workers are hit by the combination of a severe shock and a long-term decrease in demand for their skills due to automation. I use matched employer–employee data from Sweden to show that displaced routine workers have worse labour market outcomes than displaced non-routine workers. Furthermore, a significant share of their earnings losses is passed through to disposable income, meaning that routine workers are not compensated by social insurance. I also find evidence in favour of routine workers’ larger losses being caused by the irrelevance of their pre-displacement occupation-specific human capital. Routine workers are more likely to switch occupations and industries upon re-employment. Their wages upon re-employment are lower compared to non-routine workers and compared to the mean wage in their new occupation. I do not find evidence that switching to a non-routine occupation reduces losses, with switchers instead appearing to do worse in the short-to-medium run.