Health effects of downsizing survival and job loss in Norway

Abstract

The effects of job displacement (i.e. job loss due to downsizing or plant closure) and downsizing survival on different health outcomes (i.e. psychological distress, muscle-skeletal pain, and chest pain) were examined with annual panel data from the Norwegian Panel Survey of Living Conditions 1997–2003. The data were analyzed by means of dynamic panel data regression models, taking explicitly into account pre-downsizing health levels and unobserved heterogeneity. In contrast to some previous studies, but in line with theoretical expectations, no significant effect of downsizing survival was found. Job displacement was, however, found to lead to a significant increase in psychological distress, but even this effect seems transitory rather than long-lasting.

Introduction

Organizational downsizing, restructuring and mass layoffs have become common responses to changes in organizations’ operating environments, and the organizational and individual consequences of such changes have been the focus of much scholarly work (Datta, Guthrie, Basuil, & Pandey, 2010). It is well established that “displaced workers” (i.e. workers who have lost their job due to plant closure or downsizing) have an increased risk of entering unemployment, or end up in lower paid jobs (Kletzer, 1998), and that unemployment can lead to poor health – especially psychological distress such as depression (Paul & Moser, 2009). However, in the downsizing literature, it is also argued that there are adverse health effects of downsizing for remaining workers (Grunberg et al., 2001, Vahtera et al., 1997), as well as for workers threatened with redundancy (Ferrie et al., 1995, Schnall et al., 1992). The dominant explanation for this is that downsizing is also stressful, e.g. due to increased workloads or job insecurity, for workers who do not lose their job in the process (e.g. Kivimäki, Vahtera, Pentti, & Ferrie, 2000). One of the traditional assumptions in stress research is also that the anticipation of a stressful event (e.g. job loss) represents an equally important source of anxiety as the actual event (Lazarus & Folkman, 1984).

The link between job loss and health is, however, far better documented than is the assumed link from downsizing survival or anticipated job loss to health. That job loss and unemployment is stressful is supported by both theory (Ezzy, 1993, Jahoda, 1982, Warr, 1987) and empirical evidence (Paul & Moser, 2009). Reviews of the downsizing literature have also concluded that there are considerable negative health effects (Ferrie et al., 2008, Quinlan et al., 2001), but the evidence is nevertheless limited: the number of published studies is small, most evidence comes from the public sector, and studies are often limited to a single organization. There is also a general shortage of studies that sample both displaced and remaining workers, and selection issues are not often explicitly dealt with in empirical studies. In addition, there are unresolved theoretical issues concerning the severity and persistence of post-downsizing stress.

In Norway, strong employment protection and widespread adherence to the seniority principle in layoff decisions, coupled with a generous and universal unemployment benefits scheme, may contribute to less adverse effects of downsizing and job loss than in countries lacking these characteristics. Consistent with this, there is evidence that displacement costs in terms of earnings are generally very low in Norway, compared to those found in US studies for example (Huttunen, Møen, & Salvanes, 2011). Nevertheless, during the past few decades Norway has seen increased competition and shrinkage in the manufacturing sector and quite strong modernization in the public sector. These trends, that are by no means special to Norway, have not only resulted in increased downsizing and restructuring, but also to increased public concern about the health effects of these changes.

In this study, I try to shed light on some of these issues, using longitudinal survey data that are coupled with data from administrative registers for the population of Norway 1997–2003. Among other things, the data have made it possible to examine the effects of downsizing on remaining workers’ level of psychological distress as well as physical health complaints, and to make comparisons between downsizing survivors and displaced workers. The longitudinal nature of the data also makes it possible to control for pre-downsizing levels of health, and to reduce the importance of unobserved characteristics that are likely to determine selection into downsizing survival and job displacement. I will argue that, even though downsizing may cause health problems for laid off workers, there are good reasons to expect that downsizing does not typically lead to health problems for workers who do not lose their job in the process.