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Earnings losses and labor mobility over the life-cycle

  • Jung, Philip
  • Kuhn, Moritz

An extensive empirical literature has documented that workers with high tenure suffer large and persistent earnings losses when they get displaced. We study the reasons behind these losses in a tractable search model with a life-cycle dimension, endogenous job mobility, worker- and match-heterogeneity. The model reconciles key characteristics of the U.S. labor market: large average transition rates, a large share of stable jobs, and the earnings losses from displacement. We decompose the earnings losses and find that only 50% result from skill losses. Endogenous reactions and selection account for the remainder. Our findings have important implications for the welfare costs of displacement and labor market policy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40287.

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Date of creation: 27 Jul 2012
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Handle: RePEc:pra:mprapa:40287
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