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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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    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. repec:red:issued:16-276 is not listed on IDEAS
    5. Pessoa de Araujo, Ana Luisa, 2017. "Wage Inequality and Job Stability," Working Papers 5, Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute.
    6. repec:red:ecodyn:v:18:y:2017:i:1:agenda is not listed on IDEAS
    7. Joachim Hubmer, 2018. "The Job Ladder and its Implications for Earnings Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 172-194, July.
    8. Krolikowski, Pawel, 2016. "Choosing a Control Group for Displaced Workers," Working Paper 1605, Federal Reserve Bank of Cleveland, revised 17 Aug 2017.
    9. Fackler, Daniel & Müller, Steffen & Stegmaier, Jens, 2017. "Explaining wage losses after job displacement: Employer size and lost firm rents," IWH Discussion Papers 32/2017, Halle Institute for Economic Research (IWH).
    10. 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.
    11. Sanchez, Manuel & Wellschmied, Felix, 2017. "Modeling Life-Cycle Earnings Risk with Positive and Negative Shocks," IZA Discussion Papers 10925, Institute for the Study of Labor (IZA).
    12. 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.
    13. Pawel Krolikowski, 2017. "Job Ladders and Earnings of Displaced Workers," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 1-31, April.
    14. 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.
    15. 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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