The Intergenerational Effects of Worker Displacement

This paper uses variation induced by firm closures to explore theintergenerational effects of worker displacement. Using a Canadian panel ofadministrative data that follows almost 60,000 father-child pairs from 1978 to 1999 andincludes detailed information about the firms at which the father worked, we constructnarrow treatment and control groups whose fathers had the same level of permanentincome prior to 1982 when some of the fathers were displaced. We demonstrate that jobloss leads to large permanent reductions in family income and small increases in mobilityand divorce. Comparing outcomes among individuals whose fathers experienced anemployment shock to outcomes among individuals whose fathers did not, we find thatchildren whose fathers were displaced have annual earnings about 9% lower than similarchildren whose fathers did not experience an employment shock. They are also morelikely to receive unemployment insurance and social assistance. The estimates are drivenby the experiences of children whose family income was at the bottom of the incomedistribution, and are robust to a number of specification checks.This work was completed while Oreopoulos was a Statistics Canada Research Fellow and member of theFamily and Labour Studies Division of Statistics Canada. The financial support of the National ScienceFoundation is gratefully acknowledged. We also wish to thank Miles Corak, and seminar participants atBrown University, MIT, Princeton University, Stanford University, Yale University, the University ofCalifornia Berkeley, UCLA, the University of Toronto and the NBER summer institute for their helpfulcomments.