The Heterogeneous Earnings Impact of Job Loss across Workers, Establishments, and Markets

Using generalized random forests and rich Swedish administrative data, we show that the earnings effects of job displacement due to establishment closures are extremely heterogeneous across workers, establishments, and markets. The decile of workers with the largest predicted effects lose 50 percent of annual earnings the year after displacement and accumulated losses amount to 250 percent during a decade. In contrast, workers in the least affected decile experience only marginal losses of less than 6 percent in the year after displacement. Workers in the most affected decile tend to be lower paid workers on negative earnings trajectories. This implies that the economic value of (lost) jobs is greatest for workers with low earnings. The reason is that many of these workers fail to find new employment after displacement. Overall, the effects are heterogeneous both within and across establishments and combinations of important individual characteristics such as age and schooling. Adverse market conditions matter the most for already vulnerable workers. The most effective way to target workers with large effects, without using a complex model, is by focusing on older workers in routine-task intensive jobs.