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Earnings Losses and Labor Mobility over the Lifecycle

  • Jung, Philip


    (University of Bonn)

  • Kuhn, Moritz


    (University of Bonn)

Extensive literature demonstrates that workers with high tenure suffer large and persistent earnings losses when they are displaced. We study the reasons behind these losses in a tractable search model that includes a lifecycle dimension, endogenous job mobility, and worker- and match-heterogeneity. The model jointly explains key characteristics of the U.S. labor market such as large average transition rates, a large share of stable jobs, and earnings losses after displacement. We decompose earnings losses and find that only 50% result from wage loss, and endogenous reactions and selection account for the remainder. These findings have important implications for welfare costs of displacement and labor market policies.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6835.

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Length: 46 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6835
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