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Understanding the Scarring Effect of Recessions

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  • Christopher Huckfeldt

Abstract

This paper documents that the earnings cost of job loss is concentrated among workers who find reemployment in lower-skill occupations, and that the cost and incidence of such occupation displacement is higher for workers who lose their job during a recession. I propose a model where hiring is endogenously more selective during recessions, leading some unemployed workers to optimally search for reemployment in lower-skill jobs. The model accounts for existing estimates of the size and cyclicality of the present value cost of job loss, and the cost of entering the labor market during a recession.

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  • Christopher Huckfeldt, 2022. "Understanding the Scarring Effect of Recessions," American Economic Review, American Economic Association, vol. 112(4), pages 1273-1310, April.
    • Handle: RePEc:aea:aecrev:v:112:y:2022:i:4:p:1273-1310
    DOI: 10.1257/aer.20160449
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    Cited by:

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    2. Kjell G. Salvanes & Barton Willage & Alexander Willén, 2024. "The Effect of Labor Market Shocks across the Life Cycle," Journal of Labor Economics, University of Chicago Press, vol. 42(1), pages 121-160.
    3. Badarinza, Cristian & Ramadorai, Tarun & Siljander, Juhana & Tripathy, Jagdish, 2024. "Behavioral lock-in: aggregate implications of reference dependence in the housing market," Bank of England working papers 1054, Bank of England.
    4. Juan-Pablo Rud & Michael Simmons & Gerhard Toews & Fernando Aragon, 2022. "Job Displacement Costs of Phasing out Coal," Working Papers 184, Red Nacional de Investigadores en Economía (RedNIE).
    5. Wei Yang Tham & Joseph Staudt & Elisabeth Ruth Perlman & Stephanie D. Cheng, 2024. "Scientific Talent Leaks Out of Funding Gaps," Working Papers 24-08, Center for Economic Studies, U.S. Census Bureau.
    6. Antoine Bertheau & Edoardo Maria Acabbi & Cristina Barceló & Andreas Gulyas & Stefano Lombardi & Raffaele Saggio, 2023. "The Unequal Consequences of Job Loss across Countries," American Economic Review: Insights, American Economic Association, vol. 5(3), pages 393-408, September.
    7. Kiss, Andrea & Garlick, Robert & Orkin, Kate & Hensel, Lukas, 2023. "Jobseekers' Beliefs about Comparative Advantage and (Mis)Directed Search," IZA Discussion Papers 16522, Institute of Labor Economics (IZA).
    8. Julio Gálvez & Gonzalo Paz-Pardo, 2022. "Richer earnings dynamics, consumption and portfolio choice over the life cycle," Working Papers 2241, Banco de España.
    9. Sinem Kilic Celik & M. Ayhan Kose & Franziska Ohnsorge & F. Ulrich Ruch, 2023. "Potential Growth: A Global Database," CAMA Working Papers 2023-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Steven Bond-Smith, 2024. "Diversifying Hawai‘i's Specialized Economy: A Spatial Economic Perspective," Economic Development Quarterly, , vol. 38(1), pages 40-59, February.
    11. Ines Helm & Alice Kuegler & Uta Schoenberg, 2023. "Displacement Effects in Manufacturing and Structural Change," RF Berlin - CReAM Discussion Paper Series 2313, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    12. Gabriele Lucchetti & Alessandro Ruggieri, 2023. "Unlucky migrants: Scarring effect of recessions on the assimilation of the foreign born," Discussion Papers 2023-09, University of Nottingham, GEP.
    13. Richard Audoly & Federica De Pace & Giulio Fella, 2022. "Job ladder, human capital, and the cost of job loss," IFS Working Papers W22/55, Institute for Fiscal Studies.
    14. Andrea Bassanini & Eve Caroli & Kevin Geay & Antoine Rebérioux, 2023. "Heavy is the Crown: CEOs' Social Interactions and Layoff Decisions," Working Papers hal-04118212, HAL.
    15. Guo, Junjie, 2022. "The persistent impact of multiple offers," Labour Economics, Elsevier, vol. 74(C).
    16. Gregor Jarosch, 2023. "Searching for Job Security and the Consequences of Job Loss," Econometrica, Econometric Society, vol. 91(3), pages 903-942, May.
    17. Steven Bond-Smith & Peter Fuleky, 2023. "The effects of the pandemic on the economy of Hawaii," Current Issues in Tourism, Taylor & Francis Journals, vol. 26(23), pages 3846-3852, December.
    18. Christian vom Lehn & Cache Ellsworth & Zachary Kroff, 2022. "Reconciling Occupational Mobility in the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 40(4), pages 1005-1051.
    19. J. Carter Braxton & Bledi Taska, 2023. "Technological Change and the Consequences of Job Loss," American Economic Review, American Economic Association, vol. 113(2), pages 279-316, February.
    20. Susan Athey & Lisa K. Simon & Oskar N. Skans & Johan Vikstrom & Yaroslav Yakymovych, 2023. "The Heterogeneous Earnings Impact of Job Loss Across Workers, Establishments, and Markets," Papers 2307.06684, arXiv.org, revised Feb 2024.
    21. Steven Bond-Smith, 2022. "Diversifying Hawai‘i’s specialized economy: A spatial economic perspective," Working Papers 2022-5, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    22. Leila Bengali & Evgeniya A. Duzhak, 2024. "How Do Periods of Inflation, Recession Affect Real Earnings?," Economic Review, Federal Reserve Bank of San Francisco, vol. 2024(09), pages 1-6, April.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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