The Long Run Costs of Job Loss as Measured by Consumption Changes

The costs of involuntary job loss are an object of substantial research and policy interest. We consider the measurement of the costs of job displacement with household expenditure data. We explicitly derive a "difference-in-difference" estimator from a structural life cycle model. This exercise emphasizes questions about the appropriate counter-factual and control group, about the parameter of interest in the presence of heterogeneity and about identifying conditions. We argue that studies based on earnings or wages suffer from similar problems. In the empirical portion of the paper, we use a relatively new Canadian survey of individuals who experienced a job separation to examine consumption growth across different kinds of job separations. Our preliminary findings are that permanent layoffs have consumption growth that lags one or two percentage points behind temporary layoffs, but that this gap is not strongly correlated with individual or household characteristics.