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Using unexpected recalls to examine the long-term earnings effects of job displacement

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  • Yolanda K. Kodrzycki
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    Abstract

    This paper examines the long-term earnings consequences of permanent layoffs that occurred in Massachusetts during the early 1990s, using a sample of experienced workers who enrolled in federally funded assistance programs under Title III of the Job Training Partnership Act and remained strongly attached to the state’s workforce through the early 2000s. Comparing the earnings of these workers with the earnings of their co-workers who were unexpectedly recalled, the annual costs of being laid off were largest in the first three years following displacement. Nevertheless, a full decade after layoff, permanently displaced workers were still earning between 11 and 17 percent less than recalled workers, even after adjusting for sex, age, education, tenure at the previous employer, and reading ability at the time of layoff. Workers with no formal education beyond high school experienced particularly large earnings reductions from permanent job loss. ; More generally, this paper highlights the sensitivity of the estimates to the choice of reference group. Because the recalled workers also incurred involuntary earnings reductions after returning to their former employers, the measured costs of permanent layoff were substantially smaller when recalls were used as the comparison group than when all employed workers were used. This finding suggests that past studies comparing displaced workers to never-displaced workers may not account fully for selection bias. Finally, the research finds that workers who were permanently displaced from their employer in the early 1990s had a more pronounced deterioration in earnings during the recession of the early 2000s than recalled workers with similar characteristics. For those working in manufacturing prior to layoff in particular, this result holds up even in a dynamic specification that controls for workers’ earnings in the prior year. Thus, the paper adds support to the view that the consequences of job loss vary with business cycle conditions, even in the longer term.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 07-2.

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    Date of creation: 2007
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    Handle: RePEc:fip:fedbwp:07-2

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    Keywords: Labor market - Massachusetts ; Unemployment - Massachusetts;

    References

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    1. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November.
    2. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
    3. Huttunen, Kristiina & Moen, Jarle & Salvanes, Kjell G., 2006. "How Destructive Is Creative Destruction? The Costs of Worker Displacement," IZA Discussion Papers 2316, Institute for the Study of Labor (IZA).
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    5. Miles Corak, 1996. "Unemployment Insurance, Temporary Layoffs, and Recall Expectations," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 1-7, April.
    6. Anabela Carneiro & Pedro Portugal, 2006. "Earnings Losses of Displaced Workers: Evidence from a Matched Employer-Employee Data Set," Working Papers w200614, Banco de Portugal, Economics and Research Department.
    7. Valletta, Robert G, 1999. "Declining Job Security," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S170-97, October.
    8. Paul A. Lengermann & Lars Vilhuber, 2002. "Abandoning the Sinking Ship: The Composition of Worker Flows Prior to Displacement," Longitudinal Employer-Household Dynamics Technical Papers 2002-11, Center for Economic Studies, U.S. Census Bureau.
    9. 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.
    10. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January.
    11. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    12. Guido W. Imbens & Lisa M. Lynch, 1993. "Re-Employment Probabilities over the Business Cycle," NBER Working Papers 4585, National Bureau of Economic Research, Inc.
    13. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High Wage Workers and High Wage Firms," NBER Working Papers 4917, National Bureau of Economic Research, Inc.
    14. Yolanda K. Kodrzycki, 1997. "Training programs for displaced workers: what do they accomplish?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-57.
    15. Paul M. Ong & Don Mar, 1992. "Post-layoff earnings among semiconductor workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 45(2), pages 366-379, January.
    16. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc.
    17. Philip Oreopolous & Marianne Page & Ann Huff Stevens, 2005. "The Intergenerational Effects Of Worker Displacement," Working Papers id:183, eSocialSciences.
    18. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    19. Yolanda K. Kodrzycki, 1998. "Effects of employer-provided severance benefits on reemployment outcomes," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 41-68.
    20. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    21. Daniel Sullivan & Till von Wachter, 2007. "Mortality, Mass-Layoffs, and Career Outcomes: An Analysis using Administrative Data," NBER Working Papers 13626, National Bureau of Economic Research, Inc.
    22. Louis Jacobson & Robert LaLonde & Daniel G. Sullivan, 2002. "Estimating the returns to community college schooling for displaced workers," Working Paper Series WP-02-31, Federal Reserve Bank of Chicago.
    23. Audra Bowlus & Lars Vilhuber, 2002. "Displaced workers, early leavers, and re-employment wages," Longitudinal Employer-Household Dynamics Technical Papers 2002-18, Center for Economic Studies, U.S. Census Bureau.
    24. Marcus Eliason & Donald Storrie, 2006. "Lasting or Latent Scars? Swedish Evidence on the Long-Term Effects of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 831-856, October.
    25. Anderson, Patricia M, 1992. "Time-Varying Effects of Recall Expectation, a Reemployment Bonus, and Job Counseling on Unemployment Durations," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 99-115, January.
    26. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
    27. Yolanda K. Kodrzycki, 1995. "The costs of defense-related layoffs in New England," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 3-23.
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    Cited by:
    1. Till von Wachter & Elizabeth Handwerker & Andrew Hildreth, 2009. "Estimating the "True" Cost of Job Loss: Evidence Using Matched Data from Califormia 1991-2000," Working Papers 09-14, Center for Economic Studies, U.S. Census Bureau.

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