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Earnings losses and labor mobility over the lifecycle

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  • Jung, Philip
  • Kuhn, Moritz

Abstract

Large and persistent earnings losses following displacement have adverse consequences for the individual worker and the macroeconomy. Leading models cannot explain their size and disagree on the sources. Two mean-reverting forces make earnings losses transitory in these models: search as an upward force allows workers to climb back up the job ladder; and separations as a downward force make non-displaced workers fall down the job ladder. We show that job stability at the top rather than search frictions at the bottom is the main driver of persistent earnings losses. We provide new empirical evidence on job stability and develop a life-cycle search model to explain the facts. Our model offers a quantitative reconciliation of key stylized facts of the U.S. labor market: large worker flows, a large share of stable jobs, and persistent earnings shocks. We explain the size of earnings losses by dampening the downward force. Regarding the sources, we find that over 85 % stem from the loss of a particularly good job at the top of the job ladder. We apply the model to study the effectiveness of two labor market policies, retraining and placement support, from the Dislocated Worker Program. We find that both are ineffective in reducing earnings losses in line with the program evaluation literature.

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  • Jung, Philip & Kuhn, Moritz, 2016. "Earnings losses and labor mobility over the lifecycle," CEPR Discussion Papers 11572, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11572
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    Cited by:

    1. Mecikovsky, Ariel Matias & Meier, Matthias, 2014. "Do plants freeze upon uncertainty shocks?," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100541, Verein für Socialpolitik / German Economic Association.
    2. Claudio Michelacci & Hernán Ruffo, 2015. "Optimal Life Cycle Unemployment Insurance," American Economic Review, American Economic Association, vol. 105(2), pages 816-859, February.
    3. Sebastian Koehne & Moritz Kuhn, 2015. "Should unemployment insurance be asset-tested?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 575-592, July.
    4. Fatih Karahan & Serdar Ozkan & Jae Song, 2019. "Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital," Staff Reports 908, Federal Reserve Bank of New York.
    5. Ana Luisa Pessoa de Araujo, 2017. "Wage Inequality and Job Stability," Opportunity and Inclusive Growth Institute Working Papers 5, Federal Reserve Bank of Minneapolis, revised 05 Dec 2017.
    6. Moritz Kuhn, 2017. "The Research Agenda: Moritz Kuhn on Understanding income and wealth inequality," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 18(1), April.
    7. Daniel Borowczyk-Martins & Etienne Lalé, 2015. "How Bad is Involuntary Part-time Work?," Bristol Economics Discussion Papers 15/664, Department of Economics, University of Bristol, UK, revised 13 Jan 2016.
    8. Pawel Krolikowski, 2017. "Job Ladders and Earnings of Displaced Workers," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 1-31, April.
    9. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Wages of workers by job, plant, and education," 2018 Meeting Papers 648, Society for Economic Dynamics.
    10. Burdett, Ken & Carrillo-Tudela, Carlos & Coles, Melvyn G., 2015. "The Cost of Job Loss," ISER Working Paper Series 2015-12, Institute for Social and Economic Research.
    11. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Decomposing Life Cycle Wage Dynamics," CESifo Working Paper Series 7236, CESifo.
    12. Manuel Sanchez & Felix Wellschmied, 2020. "Modeling Life-Cycle Earnings Risk with Positive and Negative Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 103-126, July.
    13. Pawel Krolikowski, 2016. "Choosing a Control Group for Displaced Workers," Working Papers (Old Series) 1605, Federal Reserve Bank of Cleveland, revised 02 Feb 2016.
    14. Marotzke, Petra, 2013. "Job Search and the Age-Inequality Profile," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80007, Verein für Socialpolitik / German Economic Association.
    15. Pawel Krolikowski, 2018. "Choosing a Control Group for Displaced Workers," ILR Review, Cornell University, ILR School, vol. 71(5), pages 1232-1254, October.
    16. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Decomposing Life Cycle Wage Dynamics," CESifo Working Paper Series 7236, CESifo.
    17. Ana Luisa Pessoa Araujo, 2018. "Wage Inequality and Job Stability," 2018 Meeting Papers 117, Society for Economic Dynamics.
    18. Philip Jung & Moritz Kuhn, 2013. "Wage dynamics in long-term contracts," 2013 Meeting Papers 556, Society for Economic Dynamics.

    More about this item

    Keywords

    Earnings Losses; Job tenure; Lifecycle labor market mobility; Worker- and match-specific skills;

    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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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