Direct and Indirect Exposure to Economic Shocks: How Mass Layoffs Affect Political Behavior

Existing research has shown that economic shocks affect political attitudes, erode incumbent support, and have contributed to the rise of populist parties and candidates. Their effects are, however, not necessarily limited to those individuals that are directly impacted; they also produce political consequences indirectly through social diffusion mechanisms among peers or within a region. This paper aims to disentangle and compare the effects of economic shocks in the form of mass layoffs on individuals’ partisanship and political behavior. I propose distinguishing between three types of mass layoff experiences, which can be seen as ranging from micro-level, or direct, exposure, i.e. actual job loss, to meso-level, or indirect, exposure to an economic shock that can act as signals of job loss risk. First, an individual might be personally experiencing (exogenously caused) job loss through mass layoffs at the firm where they are employed or through a plant closure. Second, workers may witness layoffs in their own establishment while remaining employed, thus encountering labor market insecurity through their immediate peers. Third, individuals can be exposed to mass layoffs or plant closures in their local labor market region. I expect these experiences to differentially shape insecurities, political attitudes, and electoral behavior—not only in terms of the magnitude of the effects, with more direct exposure having a stronger impact, but also by potentially leading to qualitatively different outcomes (i.e. political disengagement versus populist support). Empirically, the study draws on a new data set linkage from Germany combining several decades of panel survey data with individual-level administrative labor market records and firm-level establishment history data. This combination of data allows me to identify and distinguish between individuals’ direct and indirect mass layoff experiences by leveraging information on employment status, changes in workforce size at the firms where individuals are employed as well as at firms located in their region of residence. Using a difference-in-differences approach, I investigate the long-term impact of direct and indirect layoff shocks on formation of party identification and the short-term effects on reported vote choice.