(ONLINE) Economics and Finance Seminar: Giovanni Mastrobuoni (Collegio Carlo Alberto)

Important: The seminar will be held online.

Mass Layoffs and Lemons: Evidence from Chile

Who gets displaced in mass-layoff episodes can be far from random, and selection can generate sizable heterogeneity in both post-layoff employment and criminal charges. We link Chilean administrative worker-firm records to universe-level public defender data, and compare matched displaced and non-displaced workers using event-study and difference-in-differences designs with a rich set fixed effects. We document that displacement drastically reduces employment and earnings and increases criminal charges in the following periods; on average, employment falls by approximately 18-30 percentage points, while criminal charges increase by approximately 0.3-0.4 percentage points. Crucially, magnitudes vary systematically with the intensity of the mass-layoff: effects are largest when separations occur in lower-intensity layoffs-consistent with negatively selected workers being targeted first-and attenuate monotonically as events approach full layoffs. Selection of more criminally prone or less productive individuals is mostly within-firms rather than across firms. A simple model of labor and crime rationalizes these findings. Individuals with a criminal record face two conditions that increase their criminal attitude when displaced: on one hand, they receive fewer and worse job offers; on the other hand, since they already have a record, they are less deterred by an additional criminal record. Taken together, our results caution against treating mass layoffs as uniformly exogenous shocks and suggest that both research designs and policies should account for who is selected into displacement when assessing social costs and targeting support.