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Decomposing the Wage Losses of Displaced Workers: The Role of the Reallocation of Workers into Firms and Job Titles

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  • Raposo, Pedro

    (Universidade Catolica Portuguesa, Lisbon)

  • Portugal, Pedro

    (Banco de Portugal)

  • Carneiro, Anabela

    (University of Porto)

Abstract

Using an unusually rich matched employer-employee-job title data set for Portugal, this paper evaluates the sources of wage losses of workers displaced due to firm closure based on the comparison of workers' wages differentials before and after displacement. Potential wage losses of displaced workers can be related to firm, job title, and match heterogeneity in the pre- and post-displacement jobs. In this vein, we estimate a three-way high-dimensional fixed effects regression model that enables us to decompose the sources of the wage losses into the contribution of firm, job title, and match fixed effects. The worker-firm match plays a very sizable role. We found that the allocation of workers into poorer matches accounts for 38 percent of the total average wage loss. Sorting among firms accounts for 36 percent. Job downgrading also plays a significant role in explaining the wage loss of displaced workers, accounting for the remaining 26 percent.

Suggested Citation

  • Raposo, Pedro & Portugal, Pedro & Carneiro, Anabela, 2015. "Decomposing the Wage Losses of Displaced Workers: The Role of the Reallocation of Workers into Firms and Job Titles," IZA Discussion Papers 9220, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9220
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    References listed on IDEAS

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    1. Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2014. "Catastrophic job Destruction during the Portuguese Economic Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 444-457.
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    1. Decomposing the wage losses of displaced workers: the role of the reallocation of workers into firms and job titles
      by maximorossi in NEP-LTV blog on 2015-11-06 23:02:42

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    Cited by:

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    2. Marta C. Lopes, 2016. "Using the variation in potential duration of unemployment benefits to estimate the causal effect of unemployment duration on re-employment wages," FEUNL Working Paper Series wp608, Universidade Nova de Lisboa, Faculdade de Economia.
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    5. Wiljan van den Berge, 2019. "Automatic Reaction – What Happens to Workers at Firms that Automate?," CPB Discussion Paper 390, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    wage losses; displaced; high-dimensional fixed effects; job title; match effects;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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