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We show that downsizing has substantial externalities on the health of workers who remain in the firm. To this end, we study mass layoff (ML) survivors in Austria, using workers who survive a ML themselves, but a few years in the future, as a control group. Based on high‐quality administrative data, we find evidence that downsizing has persistent effects on mental and physical health, and that these effects can be explained by workers fearing for their own jobs. We also show that health externalities due to downsizing imply non‐negligible cost for firms, and that wage cuts may have similar effects., CINCH working paper series, vol. 2021, no. 02

Die vorliegende Untersuchung legt ihren Fokus auf ein besonders kritisch diskutiertes Spannungsfeld zwischen Personalmanagement und den internationalen Kapitalmärkten. Mithilfe der Ereignisstudienmethodik werden die Auswirkungen von Entlassungsankündigungen auf den Vermögenswert von global agierenden Fluggesellschaften analysiert. Für den Zeitraum 2003 bis 2012 wurden 84 Entlassungsankündigungen von 22 Fluggesellschaften ausgewertet. Hierbei zeigt sich, dass eine Pauschalisierung der Kursreaktionen nicht möglich ist, sondern vielmehr die spezifischen Motive und die Ausgestaltung des Personalabbaus von Relevanz sind. Angekündigte Massenentlassungen steigern nicht per se immer, wie häufig unterstellt, sondern nur in einem spezifischen Kontext den Börsenwert der Arbeitgeber. Insbesondere wirken sich proaktive Maßnahmen, die im Rahmen einer Restrukturierung umgesetzt werden, positiv auf den Shareholder-Value aus.

The paper studies how social connections affect firm-level hiring decisions and performance. We characterize the social connections of firms' employees using register data and for causal identification we use job displacements, which create directed positive shocks towards connected firms by increasing these firms' available supply of connected labor. We ascertain that our results are fully driven by these directed supply shocks. Our results show that firms appear to prefer to hire employed workers to whom they are connected over unconnected or unemployed workers. Employed and connected workers mostly go to high-productivity firms, whereas unemployed and unconnected workers tend to go to low-productivity firms. Strong connections - family, recent, durable, formed in small groups, between socially similar agents - matter the most. A displacement shock causes connected firms, in particular low-productive ones, to hire more of the connected workers, while leaving unconnected hires and separations essentially unaffected. Increases in the supply of connected labor, therefore, cause the creation of additional jobs at the firm level. By using these shocks, we can also show that hiring connected workers has a positive causal impact on firm performance. Our results are consistent with a stylized framework where connections reduce hiring frictions and where the firms' ability to hire connected workers is a function of these workers' outside options.

Organizational downsizing has been a popular management practice for years although its consequences are largely negative for both organizations and humans. Nevertheless, there is a lack of research considering the questions of why downsizing still persists although empirical evidence contradicts its effectiveness and what can be done to manage the negative consequences of layoffs. This dissertation addressed these research gaps and explored the role of individual cognition for explaining the paradoxical persistence of downsizing, the impact of specific behaviors of the layoff agent (i.e., the person who has to implement the layoff decision) for increasing the fairness of a layoff, and the effectiveness of training for improving the layoff agent’s fair delivery of layoff news. Using survey data of 527 German employees (Studies 1 and 2), it has been found that individuals’ desire to reduce cognitive dissonance might be a mechanism to explain employees’ legitimization of downsizing as an acceptable management practice. Furthermore, scenario-based experiments on 344 students and employees (Studies 3 and 4) revealed that respectful treatment by the direct supervisor during the dismissal notification meeting can be both an easy and effective way to reduce the negative consequences of a layoff for those affected. Last but not least, organizational bad news training improved layoff agents’ performance in delivering layoff news a fair way and, as a result, reduced layoff victims’ negative emotional reactions to the layoff (Studies 5 and 6), comparing the performance of a training group (receiving training on both bad news delivery and fairness aspects) with that of a basics group (receiving training on the bad news delivery aspect only) and a control group in 126 role-played dismissal meetings. In summary, the findings of this thesis are both alarming and promising. Individuals seem to contribute to the persistence of downsizing and this naturalness entails the risk of increasing harm for all involved. Nevertheless, supervisors may influence the fairness and thus employees’ acceptance of a layoff, and organizations should therefore provide them with training to promote fair bad news conversations at work. Betrieblicher Personalabbau ist ein nahezu alltägliches Ereignis, obwohl Kündigungen oftmals negative Folgen für Unternehmen und Beteiligte nach sich ziehen. Trotzdem gibt es nur wenig empirische Forschung zu den Fragen, warum Personalabbau trotz mangelnder Wirksamkeit so verbreitet ist und was getan werden kann, um die negativen Folgen von Kündigungen zu reduzieren. Um diese Fragen zu beantworten, wurde in der vorliegenden Dissertation untersucht, welche Bedeutung individuelle Kognitionen für die paradoxe Beständigkeit von Personalabbau haben, welche spezifischen Verhaltensweisen des Kündigers die wahrgenommene Fairness einer Kündigung erhöhen und ob Training das Verhalten des Kündigers verbessern kann. Zwei Befragungen von 527 deutschen Arbeitnehmern ergaben, dass das menschliche Bedürfnis nach kognitiver Dissonanzreduktion die gesellschaftliche Legitimierung von Personalabbau erklären kann (Studien 1 und 2). Zudem zeigten szenariobasierte Experimente mit 344 Studierenden und Arbeitnehmern, dass respektvolles Verhaltens seitens des direkten Vorgesetzten während des Kündigungsgesprächs sowohl ein einfaches als auch effektives Mittel ist, um die negativen Folgen von Kündigungen abzuschwächen (Studien 3 und 4). Schließlich zeigte sich, dass Training zum Überbringen schlechter Nachrichten am Arbeitsplatz die Fairness des Kündigers verbessern und damit die negativen Emotionen der Betroffenen reduzieren kann (Studien 5 und 6). Hierfür wurde die Leistung einer Trainingsgruppe (die sowohl hinsichtlich der Fairness als auch der Strukturierung von Schlechte-Nachrichten-Gesprächen geschult wurde) mit der einer Basisgruppe (die nur hinsichtlich der Strukturierung geschult wurde) und einer Kontrollgruppe in 126 simulierten Kündigungsgesprächen verglichen. Insgesamt sind die Ergebnisse dieser Arbeit sowohl beunruhigend als auch vielversprechend. Auf der einen Seite scheinen Individuen selbst zur Beständigkeit von Personalabbau beizutragen, wobei diese Selbstverständlichkeit das Risiko birgt, das Leid der Betroffenen noch zu verstärken. Auf der anderen Seite können Vorgesetzte die Fairness und damit Akzeptanz einer Kündigung beeinflussen, weshalb Unternehmen in systematisches Training investieren sollten, um ein faires Miteinander am Arbeitsplatz zu fördern.

This paper aims to provide a frame of mind to understand the link between structural change and regional unemployment, and, based on it, to survey the most recent literature. An overly optimistic view on the ability of the adjustment mechanism to generate convergence in local unemployment rates has long neglected the question of how regional imbalances arise in the first place. The availability of new longitudinal data sets allows us looking again at this issue with a fresh look, starting from patterns of reallocation among labour market statuses. The main conclusion of recent research is that high unemployment regions have a higher, not a lower rate of reallocation; this suggests, in turn, that they do not suffer from low job creation, but, rather, from high job destruction, and this is because of the low competitiveness of any economic activity. Our findings sound as a renowned justification of the need for demand side policy, especially aimed at increasing the life expectancy of private businesses in high unemployment regions.

We reviewed all articles reporting on job creation and job destruction by companies in Germany between December 2000 and September 2008 in Die Welt, one of the leading German newspapers, using experiments to test our selection criteria. There is a large difference in coverage of job creation and job shedding. Despite the fact that the economic situation in Germany improved over the period (unemployment rate fell by 2.0%), more than ten times as many articles report on negative employment news compared to positive news. When we control for the number of jobs involved, we find an even stronger bias: on a per-job basis, the bias to downsizing increases to a factor greater than 20. Additional tests indicate that these effects are similar in other leading German newspapers.

This paper considers how companies use their own mass communication media to create, with the aid of metaphors, a legitimizing image of their practices. The analysis is based on the example of two banks, both of which undertook massive staff and cost reductions between 2001 and 2003. Downsizing measures like theirs are often met with resistance if they conflict with the interests, values or worldviews of stakeholders. Companies approach this threat of resistance by building a linguistic façade of legitimacy that suggests conformity with prevailing ideas of good or correct managerial conduct. Our metaphor analysis, which covers all publicly accessible texts of the two banks' own mass communication, identifies nine metaphoric concepts, which we further condense into three persuasive meta concepts: concealing metaphor, euphemistic metaphor, and urgency and control metaphor each fulfil different persuasive functions and vary systematically according to the conditions surrounding the managerial practice.

This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with credit-constraint shocks does much better in accounting for the new facts.

Using a representative establishment data set for Germany, we show that, in line with the existing literature for several countries, firms' adjustment costs for employment are characterized by a fixed and convex functional form. Furthermore, they are asymmetric with dismissal costs exceeding hiring costs. An analysis of firms' adjustment in the period 1996-2010 also indicates that adjustment behavior has changed over time. Comparing the employment adjustment in the two observed business cycles comprising the years 1996-2003 and 2004-2010, we find that the adjustment speed was higher in the second business cycle indicating that adjustment costs have fallen in recent years. Anhand von repräsentativen Daten des IAB-Betriebspanels wird gezeigt, dass die Kosten der betrieblichen Beschäftigungsanpassung in Deutschland eine funktionale Form mit fixer und konvexer Komponente aufweisen, wie es auch frühere Studien für andere Länder feststellen. Des Weiteren ist die Struktur der Anpassungskosten asymmetrisch, wobei die Entlassungskosten größer als die Einstellungskosten sind. Bei der Analyse des betrieblichen Anpassungsverhalten für den Zeitraum 1996-2010 wird zudem deutlich, dass sich das Verhalten über die Zeit geändert hat. Ein Vergleich der betrieblichen Beschäftigungsanpassung in den zwei beobachteten Konjunkturzyklen 1996-2003 und 2004-2010 zeigt eine schnellere Anpassung im zweiten Konjunkturzyklus, was auf gesunkene Anpassungskosten hinweist.

Using matched employer-employee data, we analyse the impact of immigrants on natives' employment in Portugal. Using different model specifications, we show that the natives and immigrants are 'complements' at most occupation levels, in the sense that they are jointly hired and fired. Controlling for different skill-level groups as well as for temporary and permanent jobs, the estimates show that, contrary to the evidence from some existing literature, the natives at the lower end of the skills spectrum are not affected by the presence of immigrants as well.

We establish the existence of strong media slant against foreign owners. Using a unique data set from nation-wide distributed quality newspapers in Germany, we find that a foreign firm that downsizes in Germany receives almost twice as much attention than a domestic firm. This quantitative slant is accompanied by qualitative slant; newspapers report in a more negative way about downsizing foreign than domestic firms. The slant is present in all quality newspapers, but it increases from right to left in the political spectrum. This is consistent with theory papers arguing that slant is an equilibrium phenomenon. The slant we document is a clean measure for economic xenophobia; however, not geared against migrants, but against foreign owners. The slant can be a substantial obstacle to FDI, as illustrated by case studies. Our results are likely to be a lower bound estimate, because Germans are rather globalization-friendly and we are looking at quality papers, not tabloids.

This paper examines the comparative response of multinationals and domestic firms to an economic crisis, using the empirical setting of a well defined case of economic slowdown in Chile. We find that employment in manufacturing plants has been drastically reduced during the economic crisis. Our findings reveal that multinationals are more likely to exit contributing to the employment contraction during the crisis, but surviving foreign firms experience lower employment reductions than domestic enterprises. These results are not fully consistent with idea that multinationals are less affected by an economic crisis and that they may be able to act as stabilizers.

In this paper, I discuss three sets of links which I uncover in the data on aggregate US job and worker flows. Job flows are strongly related to aggregate employment growth, while worker flows are strongly related to employment growth and the unemployment rate. I show that a simple frictionless business cycle model with heterogeneity and a simple form of on-the-job search can explain these links. Job flows respond simply to the cross-section of firm growth, which responds to aggregate employment growth. Worker flows are related to both employment growth and the unemployment rate, and quits and hires are particularly tightly related to each other. Quits and hires interact to form a hiring chain-hires beget quits through on-the-job search, and quits beget hires to replace quitters. High unemployment crowds out quits, shortens the hiring chain, reduces the number of hires, and also results in an elevated layoff rate. The simple hiring chain model fits the data surprisingly well.

Economies with low unemployment often have high disability rates. In Norway, the permanent disability insurance rolls outnumber registered unemployment by four to one. Based on administrative register data matched with firms' financial statements and closure data collected from bankruptcy proceedings, we show that a large fraction of Norwegian disability insurance claims can be directly attributed to job displacement and other adverse shocks to employment opportunities. For men, we estimate that job loss more than doubles the risk of entry to permanent disability and that displacements account for fully 28 percent of all new disability insurance claims. We conclude that unemployment and disability insurance are close substitutes.

One may hope to capture the behavioral and emotional effects of downsizing the laborforce in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principalagent scenario with a labor market background. We pursue the latter approach and test experimentally wether downsizing occurs whenever (game) theoretically predicted and whether effort reactions qquestion its profitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.

Firms are affected by the product demand. This leads to employment adjustments. In the literature we find only very few contributions investigating the issue whether internal adjustments are linked and which relationships exist with external adjustments. Are they of a complementary or substitutive nature? Furthermore, it is of interest to find out, whether we can observe an obvious trend and whether the adjustments are driven by cyclical movements. For this study we have an extensive data set of a large German manufacturing company, which supplies innovative products for the domestic and international market, provided on a monthly base from January 1999 to December 2005. The empirical analysis starts with descriptive statistics. We find that the employment adjustment cycle coincides only to a certain degree with the macroeconomic cycle. Internal and external adjustments are more characterized by complementarity than by substitution. Over the observed period we cannot detect analogous wage adjustments. It is noticeable that in 2003 compared with the years before the number of employees is substantially reduced. The econometric investigation is based on a two-stage approach. We start with a bivariate probit estimation in order to extract the relationship between the probability of overtime and of promotion. Unobserved variables have opposite effects on the former and the latter adjustment instrument. Furthermore, we detect a negative trend of internal employment adjustments. Cyclical effects are ambiguous. The next step, the determination of external adjustments with respect to overtime and promotion adjustments, is split into two estimates. On the one hand we do not distinguish between the type of external employment adjustment and on the other hand we use this information separating between quits, layoffs, workers with a cancellation agreement and with a transition into a transfer organisation. The first approach demonstrates that a promotion reduces the probability to leave the firm while overtime is positively associated with an external job change. This pattern holds generally speaking in the second, more detailed estimates. Quits are the exception. In this case we observe opposite effects. Finally, we cannot detect any influences of promotions on cancellation agreements.

This paper examines whether subjective expectations of unemployment are reliable indicators of the probability of becoming unemployed, and investigates their association with wage growth. We find that workers' fears of unemployment are increased by their previous unemployment experience and by the unemployment experiences of a close friend, and are associated with other objective indicators of insecure jobs. We then show that unemployment fear predicts future unemployment, above and beyond observed objective variables. High fears of unemployment are found to be associated with significantly lower levels of wage growth for men, but to have no significant link with wage growth for women.

Little is known about the relationship between family firms and their employees. This paper aims to close this gap. We distinguish between family management and family ownership as two dimensions of family firms and analyze their respective influence on downsizing. Our findings show that family management decreases the likelihood of downsizing, whereas the extent of family ownership decreases the likelihood of downsizing only with regard to deep job cuts (above 6%). We conclude that family managers have a strong long-term perspective, which is in line with both agency and stewardship theory. Yet, the idea that reputation concerns lead family owners to shy away from downsizing is only partially supported.

Whereas employee participation is generally conceived to facilitate implementation of organizational change, only limited research has investigated whether it may reduce the negative effects of downsizing. The present study compares two Swedish hospitals that implemented downsizing in different ways. While there were no major differences in stressors between hospitals, proactive implementation was associated with more employee participation. Moreover, employee participation variables were positively associated with employee work attitudes and well-being at both hospitals. These findings provide insights concerning the importance of a long-term strategic implementation of organizational change. Von Mitarbeiterbeteiligung wird gewöhnlich erwartet, dass sie die Implementierung von organisationalem Wandel unterstützt. Dagegen finden sich nur wenige Untersuchungen zur Frage, ob dadurch die negativen Effekte von Downsizing reduziert werden. Die vorliegende Untersuchung vergleicht zwei schwedische Krankenhäuser, in denen Downsizing auf proaktivem bzw. reaktivem Wege implementiert wurde. Zwar finden sich zwischen den Krankenhäusern keine größeren Unterschiede in den Stressoren, aber bei der proaktiven Implementierung waren die Mitarbeiter stärker beteiligt. Mitarbeiterbeteiligung korrelierte positiv mit Arbeitseinstellungen und Wohlbefinden der Mitarbeiter in beiden Krankenhäusern. Die Ergebnisse geben Hinweise auf die Bedeutung der langfristig-strategischen Implementierung von organisationalem Wandel.

We experimentally test how acceptance thresholds react to the decision of the proposer in a three party ultimatum game to exclude one of two responders with veto power from the game. We elicit responder acceptance thresholds in case the proposer decides to exclude one of them, what increases the available pie, and in case he doesn’t exclude him despite strong monetary incentives. We find that on the aggregate level the proposer’s decision has no effect on acceptance thresholds. However, if the proposer excludes one responder, the distribution of thresholds becomes bimodal, indicating a polarization in behavior.

Despite the increased frequency of job loss for older workers in Europe, little is known on its effect on the work-retirement decision. Employing individual data from the European Community Household Panel for Germany, Italy, Spain, and the U.K., a multivariate competing-risks hazard model is estimated in which the effect of job displacement is identified separately for transitions into re-employment and retirement. The findings suggest that in countries with institutional provisions for older unemployed which offer a pathway to early retirement such as, Germany and Spain, older displaced workers exhibit lower re-employment and higher retirement rates compared to the non-displaced. These results are robust to dynamic selection due to unobserved heterogeneity and to the endogeneity of displacement.

Involuntary job loss in administrative data is commonly identified by focusing on mass-layoffs or plant closures. However, such events usually do not happen without prior knowledge, which potentially leads to selection in the labor turnover of distressed firms. We find that workers separating from closing plants up to 2 quarters before closure are associated with significantly lower displacement costs and on average significantly higher pre-closure earnings levels as opposed to ultimately displaced workers. Furthermore, our results indicate that displaced workers with high pre-closure earnings experience significantly lower reductions in future employment probabilities. These findings suggest that compositional differences cause estimated displacement costs to differ between early leavers and ultimately displaced workers. Focusing exclusively on the latter group would lead to a serious overestimation of displacement costs.

According to the compensation theory, market forces should assure a complete compensation of the initial labour-saving impact of process innovations. In this paper a critique of this approach is proposed through a detailed survey of the theoretical and empirical literature on the subject. The general conclusion is that - although compensation is always working - the complete counter-balancing of dismissed workers cannot be assumed ex-ante.

We exploit homogeneous firm level data of manufacturing and non-manufacturing sectors to study the impact of firing restrictions on job flow dynamics across 14 European countries. We find that more stringent firing laws dampen the response of job destruction to the cycle, thus making job turnover less counter-cyclical. Moreover, the impact of firing costs on job creation and job destruction varies across sectors, depending on sector-specific trend growth. Our findings clearly suggest that such costs are more important in contracting than in growing sectors.

Early retirement is usually explained as a supply-side phenomenon. However, early retirement can also be a demand-side phenomenon arising from a firm's profit maximization behavior. This paper analyzes voluntary and involuntary early retirement based on international microdata covering 19 industrialized countries. The results indicate that generous early retirement provisions of the social security system do not only make voluntary early retirement more attractive for individuals, but also induce firms to encourage more employees to retire early. In particular, firms seem to use early retirement to reduce staff during economic recessions and as a means to circumvent employment protection legislation.

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. This data set results from the match of two sources: the Wage Structure Survey and the Workforce Movement Questionnaire. We show that the cost of hiring into permanent contracts is larger than the cost of hiring into fixed-term contracts. But these costs are small in comparison to the costs of retiring or terminating workers. Furthermore, collective terminations (dismissal of at least 10 workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no or little firm-specific fixed cost. Furthermore, termination and hiring costs are concave and induce firms to group their permanent hirings and separations. Retirement costs are linear. These estimates show that regulations imposed by French labor laws significantly affect the structure and the magnitude of these costs.

Gross job and worker flows in Russian industry are studied using panel data from a recent survey of 530 firms selected through national probability sampling. The data permit an examination of several important measurement issues-including the timing and definition of employment, the roles of split-ups and mergers, and the relative magnitudes of rehiring and new hiring and of quits and layoffs-and they contain a rich set of firm characteristics that may affect job and worker turnover. The results imply that job destruction and worker separation rates in industrial firms rose in the early 1990s, as did job flows as a fraction of worker flows and layoffs as a fraction of separations. By contrast, job creation and worker hiring rates were flat until 1999, the former low and the latter surprisingly high. Heterogeneity in individual firm behavior increased throughout. New firms and old enterprises that have been reorganized display much larger flows compared with unreorganized enterprises. Unions appear to reduce worker flows, but the structure of neither product nor labor markets shows a significant impact. Private ownership has ambiguous effects: insider ownership, particularly by managers, is associated with higher worker flows and excess job reallocation, while outsider ownership, particularly by blockholders, is associated with lower flow rates. A measure of adjustment costs constructed from the worktime necessary to hire and train a new employee is strongly related to variables usually associated with adjustment costs, including worker wage, education, firm size, capital intensity, and labor productivity, but only weakly to job and worker turnover. Little evidence is found that firms' employment adjustments have become more sensitive to adjustment costs during the transition, but worker and manager ownership are associated with more sensitivity than are other types of ownership. A revised version of this paper was published in Economics of Transition, Vol. 11, No. 2 (June 2003). Please cite the revised version.

In 1996 and 1997, approximately 1 in 10 British workers thought that it was either likely or very likely that they would lose their job within 12 months. Increased job insecurity has been touted as a possible cause for the decline of equilibrium unemployment in Britain and the United States during the 1990s. We investigate whether perceptions of job insecurity contribute to lowering wages. First, we examine the validity of subjective questions about unemployment expectations, using longitudinal data. We find that workers' fears of unemployment are increased by their previous unemployment experience and by other household members' unemployment experiences, and are associated with other objective indicators of insecure jobs. The measure of unemployment fear also helps to predict future unemployment, above and beyond conventional objective variables. We then show that high fear of unemployment is associated with significantly lower wage levels. OLS estimates of the downward impact on average wages of an increase in this expectation by just one half of a standard deviation are approximately 1½ percent. Instrumental variable estimates suggest that 1½ percent is likely to be an underestimate. We conclude that increased job insecurity, relative to aggregate unemployment, has contributed in part to wage restraint in Britain.

Optimal layoff rules in closed form are derived for all workers in a firm that downsizes under uncertainty and faces heterogeneous firing costs. The theoretical model predicts that the firm displaces workers with low firing costs, low expected future productivity growth, and low layoff option values. The empirical analysis based on personnel records from a Dutch aircraft building company that went bankrupt in 1996 shows that workers with high uncertainty associated with higher than average expected productivity growth are most likely to be retained.

In the late 1980s privatization and down-sizing of nationalized steel mills and related firms in the metal industry have lead to large-scale redundancy plans. A special Steel Foundation was created as part of a social plan. This foundation acted like an independent training center, where displaced workers would spend relatively long training periods (sometimes several years), obtaining personality and orientation training, as well as formal education. The last step of the integrative program was placement assistance as well as assistance for creating one’s own business. The foundation was financed by (higher) contributions from unemployment insurance funds, by the previous firms themselves, as well as by a collectively-bargained special tax on the remaining workers in the steel firms. Moreover the trainees themselves would have to support the foundation by giving up the interest accruing to their redundancy payments. I use combined data from Austrian social security records and from the Employment Service to look at participation decisions and on post-foundation economic performance, i.e. days worked and wage growth. As a control group I take all displaced workers from the firms who formed the foundation, using Instrumental Variables to solve the selection problem. The results show considerable wage gains - even for a period of five years after leaving the Foundation - as well as improved employment prospects. Finally, a cost-benefit analysis is performed to assess the long-term success of the Foundation.