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Using unexpected recalls to examine the long-term earnings effects of job displacement

  • Yolanda Kodrzycki
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    This paper examines the long-term earnings consequences of permanent layoffs that occurred in Massachusetts during the early 1990s, using a sample of experienced workers who enrolled in federally funded assistance programs under Title III of the Job Training Partnership Act and remained strongly attached to the state’s workforce through the early 2000s. Comparing the earnings of these workers with the earnings of their co-workers who were unexpectedly recalled, the annual costs of being laid off were largest in the first three years following displacement. Nevertheless, a full decade after layoff, permanently displaced workers were still earning between 11 and 17 percent less than recalled workers, even after adjusting for sex, age, education, tenure at the previous employer, and reading ability at the time of layoff. Workers with no formal education beyond high school experienced particularly large earnings reductions from permanent job loss. ; More generally, this paper highlights the sensitivity of the estimates to the choice of reference group. Because the recalled workers also incurred involuntary earnings reductions after returning to their former employers, the measured costs of permanent layoff were substantially smaller when recalls were used as the comparison group than when all employed workers were used. This finding suggests that past studies comparing displaced workers to never-displaced workers may not account fully for selection bias. Finally, the research finds that workers who were permanently displaced from their employer in the early 1990s had a more pronounced deterioration in earnings during the recession of the early 2000s than recalled workers with similar characteristics. For those working in manufacturing prior to layoff in particular, this result holds up even in a dynamic specification that controls for workers’ earnings in the prior year. Thus, the paper adds support to the view that the consequences of job loss vary with business cycle conditions, even in the longer term.

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    File URL: http://www.bostonfed.org/economic/wp/wp2007/wp0702.htm
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    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 07-2.

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    Date of creation: 2007
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    Handle: RePEc:fip:fedbwp:07-2
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    10. Yolanda K. Kodrzycki, 1995. "The costs of defense-related layoffs in New England," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 3-23.
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    17. Yolanda K. Kodrzycki, 1997. "Training programs for displaced workers: what do they accomplish?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-57.
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    19. Jacobson, Louis & LaLonde, Robert & G. Sullivan, Daniel, 2005. "Estimating the returns to community college schooling for displaced workers," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 271-304.
    20. Carneiro, Anabela & Portugal, Pedro, 2006. "Earnings Losses of Displaced Workers: Evidence from a Matched Employer-Employee Data Set," IZA Discussion Papers 2289, Institute for the Study of Labor (IZA).
    21. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    23. Anderson, Patricia M, 1992. "Time-Varying Effects of Recall Expectation, a Reemployment Bonus, and Job Counseling on Unemployment Durations," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 99-115, January.
    24. Huttunen, Kristiina & Moen, Jarle & Salvanes, Kjell G., 2006. "How Destructive Is Creative Destruction? The Costs of Worker Displacement," IZA Discussion Papers 2316, Institute for the Study of Labor (IZA).
    25. Miles Corak, 1996. "Unemployment Insurance, Temporary Layoffs, and Recall Expectations," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 1-7, April.
    26. Paul A. Lengermann, 2002. "Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality," Longitudinal Employer-Household Dynamics Technical Papers 2002-10, Center for Economic Studies, U.S. Census Bureau.
    27. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January.
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