IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp2291.html
   My bibliography  Save this paper

Life Cycle Effects of Job Displacement in Brazil

Author

Listed:
  • Hoek, Jasper

    () (Federal Reserve Board of Governors)

Abstract

This paper estimates the consequences of the decline of the Brazilian manufacturing sector for displaced workers. I estimate that earnings decline by nearly 50% after displacement relative to one year prior. About a quarter of the initial earnings loss is attributable to reduced hours of work rather than lower wages. However, hours recover fully within one year of displacement, while wages remain about a third lower. Allowing the displacement effect to differ by age yields a surprising U-shaped curve. Middle aged workers are hit hardest by a layoff, with younger and older workers relatively better off. For workers aged 35-40, the initial earnings loss reaches 70%. This is a surprising finding because most theories of job loss predict a negative relationship between the wage loss on displacement and the length of tenure on the pre-displacement job, which is increasing in age. I account for these facts with a simple model in which the ratio of specific to general human capital reaches a peak at middle age. Young workers have little specific capital and a low specific-general human capital ratio. In the early years of one’s career, specific capital (whether due to investments in specific skills or in search) accumulates much more rapidly than general human capital. Around ages 35 to 40, this trend reverses and the returns to general skills rise more rapidly. Thus, the accumulation of general skills serves to reduce the effect of job displacement at older ages despite increasing average job tenure. These findings suggest that major market reforms may have larger than anticipated effects because the primary losers are workers in the middle of their working life. This is also important from a welfare perspective because these workers are the most likely to fall through the cracks of social safety nets, which typically target younger and older workers.

Suggested Citation

  • Hoek, Jasper, 2006. "Life Cycle Effects of Job Displacement in Brazil," IZA Discussion Papers 2291, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp2291
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp2291.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    2. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    3. Gustavo Gonzaga, 2003. "Labor Turnover and Labor Legislation in Brazil," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2003), pages 165-222, August.
    4. Klenow, Peter J. & Rodriguez-Clare, Andres, 1997. "Economic growth: A review essay," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 597-617, December.
    5. Terrell, Katherine & Sorm, Vit, 1999. "Labor Market Policies and Unemployment in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 27(1), pages 33-60, March.
    6. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
    7. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-593, October.
    8. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 439-479.
    9. Kletzer, Lori Gladstein, 1989. "Returns to Seniority after Permanent Job Loss," American Economic Review, American Economic Association, vol. 79(3), pages 536-543, June.
    10. Easterly, William, 2005. "National Policies and Economic Growth: A Reappraisal," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 15, pages 1015-1059, Elsevier.
    11. Ashenfelter, Orley & Card, David, 1985. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 648-660, November.
    12. repec:fth:prinin:303 is not listed on IDEAS
    13. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-324, March.
    14. Card, David & Sullivan, Daniel G, 1988. "Measuring the Effect of Subsidized Training Programs on Movements in and out of Employment," Econometrica, Econometric Society, vol. 56(3), pages 497-530, May.
    15. Sara De La Rica, 1992. "Displaced Workers in Mass Layoffs: Pre-Displacement Earnings Losses and the Unions Effect," Working Papers 303, Princeton University, Department of Economics, Industrial Relations Section..
    16. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    17. Ham, John C & Svejnar, Jan & Terrell, Katherine, 1998. "Unemployment and the Social Safety Net during Transitions to a Market Economy: Evidence from the Czech and Slovak Republics," American Economic Review, American Economic Association, vol. 88(5), pages 1117-1142, December.
    18. Bellmann Lutz & Estrin Saul & Lehmann Hartmut & Wadsworth Jonathan, 1995. "The Eastern German Labor Market in Transition: Gross Flow Estimates from Panel Data," Journal of Comparative Economics, Elsevier, vol. 20(2), pages 139-170, April.
    19. Farber, Henry S., 1999. "Mobility and stability: The dynamics of job change in labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 37, pages 2439-2483, Elsevier.
    20. 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 165-188, January.
    21. Topel, Robert, 1990. "Specific capital and unemployment: Measuring the costs and consequences of job loss," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 181-214, January.
    22. Naercio Menezes-Filho, 2004. "The Costs of Displacement in Brazil," Econometric Society 2004 Latin American Meetings 200, Econometric Society.
    23. Michael Podgursky & Paul Swaim, 1987. "Job Displacement and Earnings Loss: Evidence from the Displaced Worker Survey," ILR Review, Cornell University, ILR School, vol. 41(1), pages 17-29, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard B. Freeman, 2009. "Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions?," NBER Working Papers 14789, National Bureau of Economic Research, Inc.
    2. Justesen, Michael, 2008. "Is the window of opportunity closing for Brazilian youth? Labor market trends and business cycle effects," Social Protection Discussion Papers and Notes 47188, The World Bank.
    3. Lehmann, Hartmut & Muravyev, Alexander & Razzolini, Tiziano & Zaiceva, Anzelika, 2013. "The wage and non-wage costs of displacement in boom times: Evidence from Russia," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1184-1201.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    2. Arnaud Lefranc, 2002. "Labor Market Dynamics and Wage Losses of Displaced Workers in France and the United-States," THEMA Working Papers 2002-15, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Job destruction and the experiences of displaced workers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 87-128, June.
    4. Arranz, Jose M. & Davia, Maria A. & Garcia-Serrano, Carlos, 2005. "Labour market transitions and wage dynamics in Europe," ISER Working Paper Series 2005-17, Institute for Social and Economic Research.
    5. Philip Jung & Moritz Kuhn, 2019. "Earnings Losses and Labor Mobility Over the Life Cycle," Journal of the European Economic Association, European Economic Association, vol. 17(3), pages 678-724.
    6. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    7. Boheim, Rene & Taylor, Mark P., 2002. "The search for success: do the unemployed find stable employment?," Labour Economics, Elsevier, vol. 9(6), pages 717-735, December.
    8. Malo, Miguel A. & Muñoz-Bullón, Fernando, 2008. "Long-term effects of involuntary job separations on labour careers," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(2), pages 767-788, April.
    9. Pawel Krolikowski, 2017. "Job Ladders and Earnings of Displaced Workers," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 1-31, April.
    10. Henry S. Farber, 1996. "The Changing Face of Job Loss in the United States, 1981-1993," NBER Working Papers 5596, National Bureau of Economic Research, Inc.
    11. Fujii, Mayu & Shiraishi, Kousuke & Takayama, Noriyuki, 2018. "The effects of early job separation on later life outcomes," Journal of the Japanese and International Economies, Elsevier, vol. 48(C), pages 68-84.
    12. Carneiro, Anabela & Portugal, Pedro, 2006. "Earnings Losses of Displaced Workers: Evidence from a Matched Employer-Employee Data Set," IZA Discussion Papers 2289, Institute of Labor Economics (IZA).
    13. Ramey, Garey & Shigeru Fujita, 2006. "The Cyclicality of Job Loss and Hiring," University of California at San Diego, Economics Working Paper Series qt4nz8p839, Department of Economics, UC San Diego.
    14. Abbring, J.H. & van den Berg, G. & Gautier, P.A. & van Lomwel, A.G.C. & van Ours, J.C. & Ruhm, C.J., 1998. "Displaced Workers in The United States and The Netherlands," Discussion Paper 1998-96, Tilburg University, Center for Economic Research.
    15. I. Sebastian Buhai & Coen N. Teulings, 2014. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(2), pages 245-258, April.
    16. Joseph G. Altonji & Nicolas Williams, 1992. "The Effects of Labor Market Experience, Job Seniority, and Job Mobility on Wage Growth," NBER Working Papers 4133, National Bureau of Economic Research, Inc.
    17. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January.
    18. Gathmann, Christina & Schönberg, Uta, 2006. "How General Is Specific Human Capital?," IZA Discussion Papers 2485, Institute of Labor Economics (IZA).
    19. repec:eee:labchp:v:3:y:1999:i:pb:p:2439-2483 is not listed on IDEAS
    20. Kunze, Astrid & Troske, Kenneth R., 2012. "Life-cycle patterns in male/female differences in job search," Labour Economics, Elsevier, vol. 19(2), pages 176-185.
    21. Andres Erosa & Luisa Fuster & Diego Restuccia, 2002. "Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 856-891, October.

    More about this item

    Keywords

    job displacement; structural adjustment; specific capital;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2291. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Holger Hinte). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.