The Long-Term Costs of Job Displacement Among Young Workers

One limitation of the recent research on the long-term costs of job displacement is its focus on individuals with established work histories. Using longitudinal data from the National Longitudinal Survey of Youth (NLSY), the authors estimate the long-term costs of job displacement for young workers. Similar to a number of recent studies, the authors use a comparison group of nondisplaced workers and regressions that include individual-level fixed-effects to estimate post-displacement earnings losses for this group. The rate of job displacement among this cohort was high during the 1980s and early 1990s. The authors find that the earnings costs of job loss for young workers are substantial and persistent, as others have shown for older and more established workers. In the fifth year following job loss, displaced men lose 8.4 percent and displaced women 13.0 percent in annual earnings, relative to expected levels. To improve the understanding of the causes of these long-term costs, the authors also examine the relative contributions of actual earnings losses and losses due to foregone earnings to total earnings losses for young displaced workers. They find a clear contrast between young and older workers in the causes of these losses. Unlike more established workers, young displaced workers do not experience a large decline in earnings following displacement. At the same time, their nondisplaced counterparts experience rapid earnings growth.