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When a Door Closes, a Window Opens? Long-term Labor Market Effects of Involuntary Separations

  • Simone Balestra

    ()

    (Department of Business Administration, University of Zurich)

  • Uschi Backes-Gellner

    ()

    (Department of Business Administration, University of Zurich)

This study estimates the earning losses of workers experiencing an involuntary job separation. We employ, for the first time in the earning losses literature, a Poisson pseudo-maximum-likelihood estimator with fixed effects that has several advantages with respect to conventional fixed effects models. The Poisson estimator allows considering the full set of involuntary separations, including those with zero labor market earnings because of unemployment. By including individuals with zero earnings and by using our new method, the loss in the year of separation becomes larger than in previous studies. The loss starts with roughly 30 percent and, although it quickly shrinks, it remains at around 15 percent in the following years. In addition, we find that compared to other reasons for separation, the earning loss pattern is unique for involuntary separations, because no other type of separation implies such permanent scarring. This latter finding makes us confident that the self-reported involuntariness of a separation is a reliable source of information.

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File URL: http://repec.business.uzh.ch/RePEc/iso/leadinghouse/0072_lhwpaper.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Economics of Education Working Paper Series with number 0072.

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Length: 22 pages
Date of creation: Feb 2012
Date of revision: Dec 2015
Handle: RePEc:iso:educat:0072
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  16. Gourieroux Christian & Monfort Alain & Trognon A, 1982. "Pseudo maximum lilelihood methods : applications to poisson models," CEPREMAP Working Papers (Couverture Orange) 8203, CEPREMAP.
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