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Replacement Rates and Long-Term Outcomes after Job Displacement

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  • Barnette, Justin

Abstract

The goal of this paper is to provide a bridge between the job displacement literature that uses long time panel data and similar work with a limited panel. This paper finds that a worker needs to replace 120% of their predisplacement income in the first two years after the event to avoid a long-term fall in income. This marginal replacement rate has variation with lower rates having much larger marginal impacts than higher replacement rates. The two results hold up to several robustness checks and generally align with a standard labor income process that has displacements as a fall in the permanent component of the process. These results provide proper context of how the first job after displacement affects the worker’s later income growth.

Suggested Citation

  • Barnette, Justin, 2020. "Replacement Rates and Long-Term Outcomes after Job Displacement," MPRA Paper 103644, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103644
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    File URL: https://mpra.ub.uni-muenchen.de/106891/1/MPRA_paper_106891.pdf
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    References listed on IDEAS

    as
    1. Philip Jung & Moritz Kuhn, 2019. "Earnings Losses and Labor Mobility Over the Life Cycle," Journal of the European Economic Association, European Economic Association, vol. 17(3), pages 678-724.
    2. Henry S. Farber, 2017. "Employment, Hours, and Earnings Consequences of Job Loss: US Evidence from the Displaced Workers Survey," Journal of Labor Economics, University of Chicago Press, vol. 35(S1), pages 235-272.
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    4. Barnette, Justin, 2020. "Wealth After Job Displacement," MPRA Paper 103642, University Library of Munich, Germany.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Displaced Workers; Job Loss; Unemployment;
    All these keywords.

    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
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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