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Rob Jensen was kind enough to provide this detailed reply to this question:

We tracked the builders who went out of business. In the short run, many of them switched over to fishing (this wouldn't count as being quite as sad as digging your own grave, but the last boat that many of them built was for themselves). We worried about this in the sense of whether leaving boat building was due to push or pull factors--a push out of building boats because their quality was low and no one wanted their boats vs. the pull into fishing because it became more profitable (8%). But it turns out that boat building is much more profitable than fishing, and when we tracked these builders, they experienced a pretty substantial loss in income following switching from building boats to fishing (it's possible that they thought fishing would be much more profitable than it really was and left for this pull factor, only to be later be proven wrong). We also note that high and low quality builders didn't really differ on profitability at baseline, so it would have to be that the bad builders felt the pull rather than the good builders, even though both were earning similar profits at the time phones came in.

What definitely didn't happen was that the guys who exit didn't go work for the guys who were growing. And these weren't mergers or acquisitions. Essentially, firms that started growing would hire friends and family mostly. You might think that a growing business would want to hire someone with experience or some skill. But basically, you can hire your not cousin or someone like that to just do the less skilled work, and then the master builder focuses more and more on the set of tasks requiring skill (shaping the wood, weaving the planks together). At some point, they probably will hit some constraint on how many cousins, other family members or friends that they could hire, though. But the biggest firms we observe are still not really beyond 10 people.  

By the way, what also eventually happened in the longer run was that some of these exited builders turned to making wooden furniture. Later on, a good amount of money started coming into the beach communities from household members (typically, sons) who would go work in the Gulf. With that money, there was a big demand for a lot of things, including big, fancy houses, plus, for some reason, wooden furniture (maybe that's the next expense after you build your big new house). So some of these builders switched into furniture building later. But we had stopped collecting data by that point, so this is only my impression from later visits.