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The Long-Run Cost of Job Loss as Measured by Consumption Changes

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  • Martin Browning
  • Thomas F. Crossley

Abstract

The costs of involutary job loss are of substantial research and policy interest. We consider the measurement of the cost of job displacement with household expenditure data. With a Canadian panel survey of individuals who experienced a job separation, we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a bench mark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4 and 10 percent. Older workers and workers with high job tenure have losses closer to the top of this range.

Suggested Citation

  • Martin Browning & Thomas F. Crossley, 2006. "The Long-Run Cost of Job Loss as Measured by Consumption Changes," Quantitative Studies in Economics and Population Research Reports 405, McMaster University.
  • Handle: RePEc:mcm:qseprr:405
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    References listed on IDEAS

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    1. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, vol. 113(491), pages 540-567, November.
    2. Peter Kuhn & Arthur Sweetman, 1998. "Wage Loss following Displacement: The Role of Union Coverage," ILR Review, Cornell University, ILR School, vol. 51(3), pages 384-400, April.
    3. Melvin Stephens, 2004. "Job Loss Expectations, Realizations, and Household Consumption Behavior," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 253-269, February.
    4. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-324, March.
    5. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
    6. Charles F. Manski & John D. Straub, 2000. "Worker Perceptions of Job Insecurity in the Mid-1990s: Evidence from the Survey of Economic Expectations," Journal of Human Resources, University of Wisconsin Press, vol. 35(3), pages 447-479.
    7. Browning, Martin & Crossley, Thomas F., 2001. "Unemployment insurance benefit levels and consumption changes," Journal of Public Economics, Elsevier, vol. 80(1), pages 1-23, April.
    8. 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.
    9. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-957, October.
    10. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
    11. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
    12. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    13. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
    14. Daniel Polsky, 1999. "Changing Consequences of Job Separation in the United States," ILR Review, Cornell University, ILR School, vol. 52(4), pages 565-580, July.
    15. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
    16. Thomas Crossley & Hamish Low, 2004. "When Might Unemployment Insurance Matter?," Department of Economics Working Papers 2004-04, McMaster University.
    17. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
    18. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    19. Martin Browning & Thomas Crossley, 2003. "Shocks, Stocks and Socks," Department of Economics Working Papers 2003-07, McMaster University.
    20. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
    21. Wang-Sheng Lee, 2013. "Propensity score matching and variations on the balancing test," Empirical Economics, Springer, vol. 44(1), pages 47-80, February.
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    Citations

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    Cited by:

    1. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, vol. 113(491), pages 540-567, November.
    2. Parsons, Donald O., 2014. "Job Displacement Insurance: An Overview," IZA Discussion Papers 8223, Institute for the Study of Labor (IZA).
    3. Bronchetti, Erin Todd, 2012. "Workers' compensation and consumption smoothing," Journal of Public Economics, Elsevier, vol. 96(5), pages 495-508.
    4. vom Berge, Philipp & Schmillen, Achim, 2015. "Direct and indirect effects of mass layoffs : evidence from geo-referenced data," IAB Discussion Paper 201511, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Lepage-Saucier, Nicolas, 2016. "The consumption response to temporary layoffs and hours losses," Labour Economics, Elsevier, vol. 41(C), pages 177-193.
    6. S. Elif Filiz, 2016. "Mothers’ Involuntary Job Loss and Children’s Academic Achievement," Journal of Labor Research, Springer, vol. 37(1), pages 98-127, March.

    More about this item

    Keywords

    Job Displacement; Consumption;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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

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