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The Long-Run Cost of Job Loss as Measured by Consumption Changes

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  • Martin Browning
  • Thomas F. Crossley

Abstract

The costs of involuntary job loss are of substantial research and policy interest. We consider the measurement of the cost of job displacement with household expenditure data. With a Canadian panel survey of individuals who experienced a job separation, we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a bench mark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4 and 10 percent. Older workers and workers with high job tenure have losses closer to the top of this range.

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File URL: http://socserv.mcmaster.ca/sedap/p/sedap152.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 152.

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Length: 55 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:mcm:sedapp:152

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Keywords: Job Displacement; Consumption;

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References

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  1. Browning, Martin & Crossley, Thomas F., 2001. "Unemployment insurance benefit levels and consumption changes," Journal of Public Economics, Elsevier, vol. 80(1), pages 1-23, April.
  2. Thomas Crossley & Hamish Low, 2004. "When Might Unemployment Insurance Matter?," Department of Economics Working Papers 2004-04, McMaster University.
  3. 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.
  4. Melvin Stephens, Jr., 2003. "Job Loss Expectations, Realizations, and Household Consumption Behavior," NBER Working Papers 9508, National Bureau of Economic Research, Inc.
  5. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
  6. Wang-Sheng Lee, 2013. "Propensity score matching and variations on the balancing test," Empirical Economics, Springer, vol. 44(1), pages 47-80, February.
  7. Martin Browning & Thomas Crossley, 2003. "Shocks, Stocks and Socks," Department of Economics Working Papers 2003-07, McMaster University.
  8. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  9. Charles F. Manski & John D. Straub, . "Worker Perceptions of Job Insecurity in the Mid-1990s: Evidence from the Survey of Economic Expectations," IPR working papers 98-27, Institute for Policy Resarch at Northwestern University.
  10. 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.
  11. 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.
  12. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
  13. 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.
  14. 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.).
  15. 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.
  16. 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.
  17. 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.
  18. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  19. 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.
  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. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
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Citations

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Cited by:
  1. 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.
  2. Bronchetti, Erin Todd, 2012. "Workers' compensation and consumption smoothing," Journal of Public Economics, Elsevier, vol. 96(5), pages 495-508.
  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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