Redundancy, Unemployment, and Self‐employment

The article assesses the direct and indirect impact of a major redundancy on local unemployment. The extent of these effects depends on the way in which the local labour market adjusts. Two hypotheses are considered. (1) that the redundant workers displaced other labour market participants from work; and (2) that self‐employment assisted the process of labour market adjustment and, therefore, reduced both the direct and indirect effects of the redundancy on unemployment. The data for the research are taken from a survey of workers made redundant,in May 1985, from the Michelin tyre company based in Stoke‐on‐Trent, England. The results suggest that displacement took place in the manufacturing sector of the local economy, but that self‐employment was important in easing the“dynamic” adjustment of the post‐redundancy labour market. Policy makers should recognise that a part of the adjustment process is the use of self‐employment as a temporary employment state.