THE UNCERTAINTY OF DISPLACEMENT

Abstract

In this paper, we document the importance of individual variations in wage outcomes of displacement, as opposed to the change in the wage distribution itself. Most of the research on displaced workers has focused on analyzing changes in the wage distribution. We show that, while the changes in the distribution of wages before and after displacement are real, as shown in many previous studies, they are negligible compared to the enormous game of musical chair taking place between workers within these distributions. When studying displaced workers, we show that, from an individual worker's point of view, the change in the distribution of wages matters much less than the draw they will make within these distributions. We show that workers suffer large movements within the distribution of wages before and after displacement. Finally, we show that even with reasonable levels of risk aversion, these large movements inside the wage distribution translate into important losses of utility for the workers.