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.