Determinants of manufacturing plant closures surveyed

Manufacturing plants with a high proportion of recently employed workers face a greater than average risk of closure, as do newly established plants, those with ageing technical equipment and those operating in tight local labour markets. These are among the findings of a study of the determinants of plant closures in Swedish manufacturing industry published in June 2001 by the Office of Labour Market Policy Evaluation (IFAU).

The probability that an industrial production plant will be closed down depends on the characteristics of its workforce ("human capital"), the age of the plant and the technical equipment, the competitive situation in the sector, and the conditions in the regional/local labour market. These are the key findings of a June 2001 report from the governmental Office of Labour Market Policy Evaluation (Institutet för arbetsmarknadspolitisk utvärdering, IFAU), entitled Determinants of plant closures in Swedish manufacturing(IFAU Working Paper 2001:6). The two researchers, Fredrik Andersson and Altin Vejsiu, have studied the determinants of plant closures in the manufacturing and mining industries in the period 1991-6 and the possible connections with sectoral conditions, the local labour market and workplace factors. The data, consisting of longitudinal linked employee-employer data, was gathered from three different sources, the Manufacturing Statistics (Industristatistiken), the Central Firm and Establishment Registry (Centrala företags- och Arbetsställeregistret) and the Regional Employment Statistics. In total, the analytical data set covered 22,998 observations on 7,228 different plants.

Some of the main findings of the study are as follows:

• plants in sectors where the competition is hard and/or productivity levels are high, risk closure to a higher degree compared with plants in other sectors with less stringent competition conditions (this more or less confirms other research in the area);

• plants in regions where the labour market is favorable for the workers - a factor that probably has an upward effect on local wage setting - tend to have a higher risk of closure;

• the structure of "human capital" may have an effect on a plant's capacity for survival. For example, among plants with a high proportion of newly employed workers - again probably a factor pushing wages upwards - the risk of closure is comparatively high;

• the age of the plant has an influence on the risk of closure. A newly established plant, where uncertainty about market conditions is probably greater, has a 10% higher risk of closure compared with a plant that has existed for 10 years; and

• ageing technological equipment, unsurprisingly, is also a risk factor. Plants that do not adapt to technical development are more likely to close than those that do.