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Job Destruction and the Experiences of Displaced Workers

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  • Wouter J. den Haan
  • Garey Ramey
  • Joel Watson

Abstract

This paper evaluates a class of endogenous job destruction models based on how well they explain the observed experiences of displaced workers. We show that pure reallocation models in which relationship-specific productivity drifts downward over time are difficult to reconcile with the evidence on postdisplacement wages and displacement rates. Pure reallocation models with upward drift can explain the evidence, but implausibly large and persistent negative productivity shocks are required to generate displacements. Combining upward drift with outside benefits or moral hazard as additional motives for displacement makes it possible to explain the evidence with much smaller shocks. Propagation of aggregate shocks, welfare implications of displacement, upgrade of relationships in lieu of displacement, and learning effects are also discussed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7218.

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Date of creation: Jul 1999
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Publication status: published as den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Job destruction and the experiences of displaced workers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 87-128, June.
Handle: RePEc:nbr:nberwo:7218

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  1. Caballero, R.J. & Hammour, M.L., 1991. "The Cleansing Effect of Recessions," Discussion Papers 1991_59, Columbia University, Department of Economics.
  2. Ricardo J. Caballero & Mohamad L. Hammour, 1994. "On the Timing and Efficiency of Creative Destruction," NBER Working Papers 4768, National Bureau of Economic Research, Inc.
  3. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  4. Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," Cowles Foundation Discussion Papers 1215, Cowles Foundation for Research in Economics, Yale University.
  5. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  6. Garey Ramey & Joel Watson, 2002. "Contractual Intermediaries," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 362-384, October.
  7. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  8. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  9. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series in Economics and Finance 178, Stockholm School of Economics.
  10. Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Contract-Theoretic Approaches to Wages and Displacement," Cowles Foundation Discussion Papers 1216, Cowles Foundation for Research in Economics, Yale University.
  11. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 193-215, 01.
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  13. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  14. repec:cdl:ucsdec:550851 is not listed on IDEAS
  15. 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.
  16. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  17. Topel, Robert, 1993. "What Have We Learned from Empirical Studies of Unemployment and Turnover?," American Economic Review, American Economic Association, vol. 83(2), pages 110-15, May.
  18. Joao Gomes & Jeremy Greenwood & Sergio T. Rebelo, 2001. "Equilibrium Unemployment," RCER Working Papers 479, University of Rochester - Center for Economic Research (RCER).
  19. Robert E. Hall, 1999. "Aggregate Job Destruction and Inventory Liquidation," NBER Working Papers 6912, National Bureau of Economic Research, Inc.
  20. 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.
  21. Antonio Cabrales & Hugo Hopenhayn, 1998. "Job dynamics, correlated shocks and wage profiles," Economics Working Papers 260, Department of Economics and Business, Universitat Pompeu Fabra.
  22. William J. Carrington, 1993. "Wage Losses for Displaced Workers: Is It Really the Firm That Matters?," Journal of Human Resources, University of Wisconsin Press, vol. 28(3), pages 435-462.
  23. Kletzer, Lori Gladstein, 1989. "Returns to Seniority after Permanent Job Loss," American Economic Review, American Economic Association, vol. 79(3), pages 536-43, June.
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