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The Long-Term Costs of Job Displacement Among Young Workers

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  • Lori G. Kletzer
  • Robert W. Fairlie

Abstract

One limitation of the recent research on the long-term costs of job displacement is its focus on individuals with established work histories. Using longitudinal data from the National Longitudinal Survey of Youth (NLSY), the authors estimate the long-term costs of job displacement for young workers. Similar to a number of recent studies, the authors use a comparison group of nondisplaced workers and regressions that include individual-level fixed-effects to estimate post-displacement earnings losses for this group. The rate of job displacement among this cohort was high during the 1980s and early 1990s. The authors find that the earnings costs of job loss for young workers are substantial and persistent, as others have shown for older and more established workers. In the fifth year following job loss, displaced men lose 8.4 percent and displaced women 13.0 percent in annual earnings, relative to expected levels. To improve the understanding of the causes of these long-term costs, the authors also examine the relative contributions of actual earnings losses and losses due to foregone earnings to total earnings losses for young displaced workers. They find a clear contrast between young and older workers in the causes of these losses. Unlike more established workers, young displaced workers do not experience a large decline in earnings following displacement. At the same time, their nondisplaced counterparts experience rapid earnings growth.

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Bibliographic Info

Paper provided by Northwestern University/University of Chicago Joint Center for Poverty Research in its series JCPR Working Papers with number 87.

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Date of creation: 01 May 1999
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Handle: RePEc:wop:jopovw:87

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  1. 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.
  2. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 281-302, July.
  3. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
  4. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November.
  5. David S. Evans & Linda S. Leighton, 1995. "Retrospective Bias in the Displaced Worker Surveys," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 386-396.
  6. Topel, Robert, 1990. "Specific capital and unemployment: Measuring the costs and consequences of job loss," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 181-214, January.
  7. 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.
  8. 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.).
  9. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April.
  10. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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