Sources of Displaced Workers' Long-Term Earnings Losses

Abstract This paper uses data from the 1968 through 1997 survey waves of the Panel Study of Income Dynamics to analyze how the long-term costs of job loss vary by a worker’s post-displacement migration status. Results from the analysis show that those individuals who move within the first 2 years after a job loss experience lower earnings losses, lower reductions in hours worked, and smaller increases in time unemployed when compared to a group of displaced workers who are not geographically mobile during the early years following this life event. Workers who move within the first 2 years after displacement face a lower probability of homeownership when compared to their non-mobile counterparts. However, this lower probability is short-lived.

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Sources of Displaced Workers’ Long-Term Earnings Losses

The American Economic Review ◽

10.1257/aer.20180652 ◽

2020 ◽

Vol 110 (10) ◽

pp. 3231-3266 ◽

Cited By ~ 1

Author(s):

Marta Lachowska ◽

Alexandre Mas ◽

Stephen A. Woodbury

Keyword(s):

Great Recession ◽

Washington State ◽

Displaced Workers ◽

Work Hours ◽

Hourly Wage ◽

The Great Recession ◽

Wage Rates ◽

Earnings Losses ◽

Wage Premiums

We estimate the magnitudes of reduced earnings, work hours, and wage rates of workers displaced during the Great Recession using linked employer-employee panel data from Washington state. Displaced workers’ earnings losses occurred mainly because hourly wage rates dropped at the time of displacement and recovered sluggishly. Lost employer-specific premiums explain only 17 percent of these losses. Fully 70 percent of displaced workers moved to employers paying the same or higher wage premiums than the displacing employers, but these workers nevertheless suffered substantial wage rate losses. Loss of valuable specific worker-employer matches explains more than one-half of the wage losses. (JEL E32, J22, J31, J63, R23)

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Sources of Displaced Workers’ Long-Term Earnings Losses

10.3386/w24217 ◽

2018 ◽

Cited By ~ 6

Author(s):

Marta Lachowska ◽

Alexandre Mas ◽

Stephen Woodbury

Keyword(s):

Displaced Workers ◽

Earnings Losses

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Sources of Displaced Workers' Long-Term Earnings Losses

10.17848/wp18-282 ◽

2017 ◽

Cited By ~ 1

Author(s):

Marta Lachowska ◽

Alexandre Mas ◽

Stephen A. Woodbury

Keyword(s):

Displaced Workers ◽

Earnings Losses

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Job Displacement Risk and the Cost of Business Cycles

The American Economic Review ◽

10.1257/aer.97.3.664 ◽

2007 ◽

Vol 97 (3) ◽

pp. 664-686 ◽

Cited By ~ 66

Author(s):

Tom Krebs

Keyword(s):

Quantitative Analysis ◽

Theoretical Analysis ◽

Business Cycles ◽

Incomplete Markets ◽

Displaced Workers ◽

Job Displacement ◽

Macroeconomic Model ◽

Earnings Losses ◽

The Cost

This paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk. The paper uses a simple macroeconomic model with incomplete markets to show that cyclical variations in the long-term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the variance of individual income changes is constant over the cycle. In addition to the theoretical analysis, this paper conducts a quantitative study of the cost of business cycles using empirical evidence on the long-term earnings losses of US workers. The quantitative analysis shows that realistic variations in job displacement risk generate sizable costs of business cycles, even though a second-moment analysis would suggest negligible costs. (JEL E21, E24, E32, J63)

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Job Ladders and Earnings of Displaced Workers

American Economic Journal Macroeconomics ◽

10.1257/mac.20140064 ◽

2017 ◽

Vol 9 (2) ◽

pp. 1-31 ◽

Cited By ~ 10

Author(s):

Pawel Krolikowski

Keyword(s):

Displaced Workers ◽

Job Displacement ◽

Wage Dispersion ◽

Earnings Losses ◽

Displaced Worker

Workers who suffer job displacement experience surprisingly large and persistent earnings losses. This paper proposes an explanation for this robust empirical puzzle in a model of search with a significant job ladder and increased separation rates for the recently hired. In addition to capturing the depth and persistence of displaced worker earnings losses, the model matches: employment-to-nonemployment and employer-to-employer probabilities by tenure; the empirical decomposition of earnings losses into reduced wages and employment; observed wage dispersion; and the distribution of wage changes around a nonemployment event. (JEL J31, J63, J64)

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Heterogeneous Scarring Effects of Full-Year Nonemployment

The American Economic Review ◽

10.1257/aer.p20171012 ◽

2017 ◽

Vol 107 (5) ◽

pp. 369-373 ◽

Cited By ~ 10

Author(s):

Fatih Guvenen ◽

Fatih Karahan ◽

Serdar Ozkan ◽

Jae Song

Keyword(s):

Social Security ◽

Low Income ◽

Social Security Administration ◽

Earnings Distribution ◽

Employment Effects ◽

Long Period ◽

Earnings Losses ◽

The Social ◽

Scarring Effects

Drawing on administrative data from the Social Security Administration, we find that individuals that go through a long period of non-employment suffer large and long-term earnings losses (around 35-40 percent) compared to individuals with similar age and previous earnings histories. Importantly, these differences depend on past earnings, and are largest at the bottom and top of the earnings distribution. Focusing on workers that are employed 10 years after a period of long-term non-employment, we find much smaller earnings losses (8-10 percent). Furthermore, the large earnings losses of low-income individuals are almost entirely due to employment effects.

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