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The Long Run Costs of Job Loss as Measured by Consumption Changes

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  • Martin Browning

    (University of Copenhagen)

  • Thomas F. Crossley

    (Australian National University and York University)

Abstract

The costs of involuntary job loss are an object of substantial research and policy interest. We consider the measurement of the costs of job displacement with household expenditure data. We explicitly derive a "difference-in-difference" estimator from a structural life cycle model. This exercise emphasizes questions about the appropriate counter-factual and control group, about the parameter of interest in the presence of heterogeneity and about identifying conditions. We argue that studies based on earnings or wages suffer from similar problems. In the empirical portion of the paper, we use a relatively new Canadian survey of individuals who experienced a job separation to examine consumption growth across different kinds of job separations. Our preliminary findings are that permanent layoffs have consumption growth that lags one or two percentage points behind temporary layoffs, but that this gap is not strongly correlated with individual or household characteristics.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0320.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0320

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  1. Bruce C. Fallick, 1995. "A review of the recent empirical literature on displaced workers," Finance and Economics Discussion Series 95-14, Board of Governors of the Federal Reserve System (U.S.).
  2. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  3. Martin Browning & Thomas Crossley, 1996. "Unemployment Insurance Benefit Levels and Consumption Changes," Department of Economics Working Papers 1996-01, McMaster University.
  4. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  5. Martin Browning & Thomas F. Crossley & Gugliemo Weber, 2002. "Asking Consumption Questions in General Purpose Surveys," CAM Working Papers 2002-05, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  6. Charles F. Manski & John D. Straub, 1999. "Worker Perceptions of Job Insecurity in the Mid-1990s: Evidence from the Survey of Economic Expectations," NBER Working Papers 6908, National Bureau of Economic Research, Inc.
  7. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  8. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
  9. Wang-Sheng Lee, 2013. "Propensity score matching and variations on the balancing test," Empirical Economics, Springer, vol. 44(1), pages 47-80, February.
  10. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
  11. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
  12. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October.
  13. Thomas Crossley & Hamish Low, 2004. "When Might Unemployment Insurance Matter?," Department of Economics Working Papers 2004-04, McMaster University.
  14. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
  15. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  16. Melvin Stephens, Jr., 2003. "Job Loss Expectations, Realizations, and Household Consumption Behavior," NBER Working Papers 9508, National Bureau of Economic Research, Inc.
  17. Peter Kuhn & Arthur Sweetman, 1998. "Wage loss following displacement: The role of union coverage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(3), pages 384-400, April.
  18. Martin Browning & Thomas Crossley, 2003. "Shocks, Stocks and Socks," Department of Economics Working Papers 2003-07, McMaster University.
  19. Daniel Polsky, 1999. "Changing consequences of job separation in the United States," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(4), pages 565-580, July.
  20. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
  21. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
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Cited by:
  1. Bronchetti, Erin Todd, 2012. "Workers' compensation and consumption smoothing," Journal of Public Economics, Elsevier, vol. 96(5), pages 495-508.
  2. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2002. "Asking Consumption Questions in General Purpose Surveys," Social and Economic Dimensions of an Aging Population Research Papers 77, McMaster University.
  3. Parsons, Donald O., 2014. "Job Displacement Insurance: An Overview," IZA Discussion Papers 8223, Institute for the Study of Labor (IZA).

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