Sources of Displaced Workers’ Long-Term Earnings Losses

Abstract

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)

The Gender Gap in Earnings Losses after Job Displacement

“…Overall, there are large earnings losses which are comparable to those found, for example, by Schmieder et al (2020) for Germany or various studies for the U.S. using administrative data (e.g., Jacobson et al (1993), Couch and Placzek (2010) or Lachowska et al (2020)).…”

“…A large literature in Economics has documented the high costs to workers who are displaced from stable jobs. Following a mass layoff, job losers face large earnings losses that last for many years (e.g., Jacobson et al, 1993;Couch and Placzek, 2010;Davis and von Wachter, 2011;Lachowska et al, 2020;Schmieder et al, 2020). A striking feature of this literature is that it has mostly focused on the experience of men, with women often not being studied at all or only as a side note.…”

The Hedgehog’s Curse: Knowledge Specialization and Displacement Loss

“…This is followed by a large drop that reaches 24 percent 36 in the displacement year (period 0), 36 percent during the first full year after displacement (period 1), and recovers relatively constant to levels around 16 percent 7 years after the displacement event. Our estimated earnings losses in the US are in line with those reported in previous work (see Couch and Placzek (2010) and Lachowska et al (2020)).…”

Job Displacement and Job Mobility: The Role of Joblessness

“…Our finding that earnings losses for all job changers are driven by movements down the job ladder is consistent with other research indicating that earnings losses of displaced workers are, in part, attributable to movements to lower-paying firms (Schmieder, von Wachter, and Heining, 2020;Fackler, Müller, and Stegmaier, 2021;Raposo, Portugal, and Carneiro, 2021;Lachowska, Mas, and Woodbury, 2020;Moore and Scott-Clayton, 2019). Our results are most comparable to those of Schmeider, von Wachter, and Heining (2020), who find that displaced workers who spend more time in nonemployment fall further down the job ladder.…”