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When a Door Closes, a Window Opens? Long-Term Labor Market Effects of Involuntary Separations

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  • Simone Balestra
  • Uschi Backes-Gellner

Abstract

This study estimates the earning losses of workers experiencing an involuntary job separation. We employ, for the first time in the earning losses literature, a Poisson pseudo-maximum-likelihood estimator with fixed effects that has several advantages with respect to conventional fixed effects models. The Poisson estimator allows considering the full set of involuntary separations, including those with zero labor market earnings because of unemployment. By including individuals with zero earnings and by using our new method, the loss in the year of separation becomes larger than in previous studies. The loss starts with roughly 30% and, although it quickly shrinks, it remains at around 15% in the following years. In addition, we find that compared to other reasons for separation, the earning loss pattern is unique for involuntary separations, because no other type of separation implies such permanent scarring. This latter finding makes us confident that the self-reported involuntariness of a separation is a reliable source of information.
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  • Simone Balestra & Uschi Backes-Gellner, 2017. "When a Door Closes, a Window Opens? Long-Term Labor Market Effects of Involuntary Separations," German Economic Review, Verein für Socialpolitik, vol. 18(1), pages 1-21, February.
    • Handle: RePEc:bla:germec:v:18:y:2017:i:1:p:1-21
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    File URL: http://hdl.handle.net/10.1111/geer.12086
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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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