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Firing discrimination: Selective labor market responses of firms during the COVID-19 economic crisis

ABSTRACT: The speed of the economic downturn in the wake of the COVID-19 pandemic has been exceptional, causing mass layoffs—in Germany up to 30% of the workforce in some industries. Economic rationale suggests that the decision on which workers are fired should depend on productivity-related individual factors. However, from hiring situations we know that discrimination—i.e., decisions driven by characteristics unrelated to productivity—is widespread in Western labor markets. Drawing on representative survey data on forced layoffs and short-time work collected in Germany between April and December 2020, this study highlights that discrimination against immigrants is also present in firing situations. The analysis shows that employees with a migration background are significantly more likely to lose their job than native workers when otherwise healthy firms are unexpectedly forced to let go of part of their workforce, while firms make more efforts to substitute firing with short-time working schemes for their native workers. Adjusting for detailed job-related characteristics shows that the findings are unlikely to be driven by systematic differences in productivity between migrants and natives. Moreover, using industry-specific variation in the extent of the economic downturn, I demonstrate that layoff probabilities hardly differ across the less affected industries, but that the gap between migrants and natives increases with the magnitude of the shock. In the hardest-hit industries, job loss probability among migrants is three times higher than among natives. This confirms the hypothesis that firing discrimination puts additional pressure on the immigrant workforce in times of crisis.

SUBMITTER: Auer D

PROVIDER: S-EPMC8803145 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:Abstract This paper investigates the consequences of the COVID-19 crisis on firms’ performance and financial vulnerability. Exploiting longitudinal firm-level data from the World Bank’s “Enterprise Surveys follow-up on COVID-19” for 20 European countries, we assess whether green management quality and pre-pandemic credit access difficulties affect firms’ ability to withstand the negative impact of the pandemic. Our results indicate that green firms are more resilient to the pandemic shock. In particular, the likelihood of pandemic-induced drops in sales and liquidity significantly decreases as the quality of green management improves. Conversely, prior financing constraints strongly exacerbate the pandemic’s impact on firms’ performance and amplify liquidity stress and financing problems. Credit-constrained enterprises are not only more likely to experience liquidity shortages and repayment problems, but they also face higher difficulties in accessing bank financing. The COVID-19 crisis has also hampered the beneficial role that green management exerted on access to credit in the pre-pandemic period. During the pandemic, firms with sound environmental management practices do not benefit from improved access to finance and have a lower demand for credit, possibly suggesting a slowdown in their green investment activities. Supplementary information The online version contains supplementary material available at 10.1007/s11187-023-00759-1. Green firms are more resilient to the COVID-19 shock, while prior credit access difficulties strongly exacerbate the pandemic’s impact on businesses. Using data on firms from 20 European countries, we find that enterprises with sound environmental management practices have a lower probability of pandemic-induced reductions in sales and liquidity. Pre-pandemic financing constraints significantly impair firms’ economic and financial performance and increase difficulties in accessing bank credit during the COVID-19 crisis. Our results suggest that public policies, aimed at encouraging firms’ environmentally sustainable behaviours and at supporting their access to credit, may contribute to strengthen the resilience of the economic system to unexpected shocks and favour the transition to a sustainable economy. Furthermore, the awareness of the competitive advantages offered by eco-sustainable practices may represent an incentive form firms to improve their environmental management quality and increase investment in green technologies. Supplementary information The online version contains supplementary material available at 10.1007/s11187-023-00759-1.

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Firing discrimination: Selective labor market responses of firms during the COVID-19 economic crisis

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