Wage and employment effects of bankruptcies

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Although the consequences of bankruptcies for affected employees are frequently debated in the public (e.g. due to the bankruptcy of the Schlecker drugstore chain in 2012), empirical evidence on this issue is quite scarce. This is in particular true for the very frequent bankruptcies of small firms. Therefore, the aim of this project is to gain fundamental insights about bankruptcies and their consequences for employees. We are the first to comprehensively investigate the consequences of bankruptcies with respect to wage and employment developments of displaced workers. In order to gain further insights about the reasons for income losses due to bankruptcies, the consequences for the employment biographies of displaced workers will be analyzed in detail (for example employment stability or the incidence of atypical employment). Moreover, it will be investigated whether certain developments at the plant level indicate an upcoming bankruptcy and whether there are changes in the number of employees, the structure of the workforce, and the fluctuation behavior of the employees. We make use of administrative plant- and individual-level data provided by the Federal Employment Agency, which are based on mandatory social security announcements as well as representative survey data from the IAB Establishment Panel. These data are matched with administrative bankruptcy data originating from three sources (data on wage compensation due to employer bankruptcy "Insolvenzgeld", social security notifications, publicly accessible bankruptcy announcements). We are the first to provide empirical evidence on bankruptcies using linked plant- and individual-level data and are also first in investigating the consequences of small and very small plants' failure based on administrative data. With respect to the latter, empirical evidence is very limited because involuntary job losses have only been studied using statistically approximated mass layoffs or plant closures.