The politics of industrial decline: Blame and compensation

Abstract How does industrial decline influence politics? I propose three mechanisms linking industrial decline to voting. First, if unemployment soars as a consequence of a plant closure, this will result in local communities being economically deprived, which leads to lower support for the incumbent. Second, blame attribution should also play an important role since incumbents can be blamed for their handling of plant closures. Third, I argue that if people are compensated, this anti-incumbent effect should be reduced. I leverage the case of the closing of Lindø Steel Shipyard in Denmark to test in a quasi-experimental setting how a plant closure is linked to voting. Leveraging a difference-in-differences (DiD) design with national election data at the municipality level from 2001–2019, I first find that the closing of the shipyard reduced votes for the right-wing incumbent government. Second, I find that the closures increased unemployment in the short to medium term, and unemployment is negatively correlated with votes for the incumbent. Third, relying on survey data and interview data, I showcase that the government was blamed for its handling of the closure and the EU was credited for its support. Fourth, leveraging an event study design, I find that the political effects are not persistent. In the election, after receiving the compensation, the effects become insignificant, which at least suggests that the compensation could have been effective.