Long-term Earnings Losses Research Articles

The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany

We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large part of the long-term earnings losses and their cyclicality is driven by declines in wages. Key to these long-lasting wage declines and their cyclicality are changes in employer characteristics, as displaced workers switch to lower-paying firms. These losses increase with duration of nonemployment. Changes in characteristics of displaced workers or displacing firms, and other post-job loss career outcomes explain little of the cyclicality. (JEL E24, E32, J31, J63, J64, J65)

The effect of job displacement on labor market outcomes: Evidence from the Chinese state-owned enterprise reform

We estimate the long-term costs of job displacement for individuals who lost their jobs during the dramatic reform of state-owned enterprises (SOEs) in the late 1990s in China, using data from the China Health and Nutrition Survey. We find that the workers displaced during the SOE reform suffered substantial and persistent earnings losses. In addition, by comparing wage losses and reductions in employment and work hours over time, we find that the majority of long-term earnings losses were driven by declines in post-displacement wages. Moreover, we find that the displaced workers tended to find reemployment in low-skilled occupations, in the private sector, with less profitable employers, and through informal contracts, which may explain the substantial costs of displacement.

Sources of Displaced Workers’ Long-Term Earnings Losses

We estimate the magnitudes of reduced earnings, work hours, and wage rates of workers displaced during the Great Recession using linked employer-employee panel data from Washington state. Displaced workers’ earnings losses occurred mainly because hourly wage rates dropped at the time of displacement and recovered sluggishly. Lost employer-specific premiums explain only 17 percent of these losses. Fully 70 percent of displaced workers moved to employers paying the same or higher wage premiums than the displacing employers, but these workers nevertheless suffered substantial wage rate losses. Loss of valuable specific worker-employer matches explains more than one-half of the wage losses. (JEL E32, J22, J31, J63, R23)

Time-varying idiosyncratic risk and aggregate consumption dynamics

Long-term earnings losses for displaced workers are large and counter-cyclical. Similarly, the skewness of earnings growth rates is strongly pro-cyclical. This paper presents an incomplete markets business cycle model in which idiosyncratic risk varies over time in accordance with these empirical findings. These dynamics of idiosyncratic risk give rise to a cyclical precautionary savings motive that substantially raises the volatility of aggregate consumption growth. According to the model, idiosyncratic risk spiked during the Great Recession, leading to a substantial decline in aggregate consumption.

Heterogeneous Scarring Effects of Full-Year Nonemployment

Drawing on administrative data from the Social Security Administration, we find that individuals that go through a long period of non-employment suffer large and long-term earnings losses (around 35-40 percent) compared to individuals with similar age and previous earnings histories. Importantly, these differences depend on past earnings, and are largest at the bottom and top of the earnings distribution. Focusing on workers that are employed 10 years after a period of long-term non-employment, we find much smaller earnings losses (8-10 percent). Furthermore, the large earnings losses of low-income individuals are almost entirely due to employment effects.

Sources of Displaced Workers' Long-Term Earnings Losses

We estimate the earnings losses of a cohort of workers displaced during the Great Recession and decompose those long-term losses into components attributable to fewer work hours and to reduced hourly wage rates. We also examine the extent to which the reduced earnings, work hours, and wages of these displaced workers can be attributed to factors specific to pre- and post-displacement employers; that is, to employer-specific fixed effects. The analysis is based on employer-employee linked panel data from Washington State assembled from 2002–2014 administrative wage and unemployment insurance (UI) records. Three main findings emerge from the empirical work. First, five years after job loss, the earnings of these displaced workers were 16 percent less than those of comparison groups of non-displaced workers. Second, earnings losses within a year of displacement can be explained almost entirely by lost work hours; however, five years after displacement, the relative earnings deficit of displaced workers can be attributed roughly 40 percent to reduced hourly wages and 60 percent to reduce work hours. Third for the average displaced worker, lost employer-specific premiums account for about 11 percent of long-term earnings losses and nearly 25 percent of lower long-term hourly wages. For workers displaced from employers paying top-quintile earnings premiums (about 60 percent of the displaced workers in the sample), lost employer-specific premiums account for more than half of long-term earnings losses and 83 percent of lower long-term hourly wages.

The Far-Reaching Impact of Job Loss and Unemployment.

Job loss is an involuntary disruptive life event with a far-reaching impact on workers' life trajectories. Its incidence among growing segments of the workforce, alongside the recent era of severe economic upheaval, has increased attention to the effects of job loss and unemployment. As a relatively exogenous labor market shock, the study of displacement enables robust estimates of associations between socioeconomic circumstances and life outcomes. Research suggests that displacement is associated with subsequent unemployment, long-term earnings losses, and lower job quality; declines in psychological and physical well-being; loss of psychosocial assets; social withdrawal; family disruption; and lower levels of children's attainment and well-being. While reemployment mitigates some of the negative effects of job loss, it does not eliminate them. Contexts of widespread unemployment, although associated with larger economic losses, lessen the social-psychological impact of job loss. Future research should attend more fully to how the economic and social-psychological effects of displacement intersect and extend beyond displaced workers themselves.

Using linked federal and state data to study the adequacy of workers' compensation benefits.

BackgroundWe combined federal and state administrative data to study the long-term earnings losses associated with occupational injuries and assess the adequacy of workers’ compensation benefits.MethodsWe linked state data on workers’ compensation claims from New Mexico for claimants injured from 1994-2000 to federal earnings records from 1987-2007. We estimated earnings losses up to 10 years after injury and computed the fraction of losses replaced by benefits.ResultsWorkers with lost-time injuries lost an average of 15% of their earnings over the 10 years after injury. On average, workers’ compensation income benefits replaced 16% of these losses. Men and women had similar losses and replacement rates. Workers with minor injuries had lower losses but also had lower replacement rates.ConclusionEarnings losses after an injury are highly persistent, even for comparatively minor injuries. Income benefits replace a smaller fraction of those losses than previously believed.

Worker Displacement and Occupation-Specific Human Capital

Decades of research have consistently demonstrated the long-term earnings losses associated with job displacement. Despite the pervasiveness of this result, there has been limited research explaining why displaced workers lose so much value in the labor market. This study examines the effect of occupation-specific human capital in moderating postdisplacement earnings losses using occupational data from the U.S. Department of Labor and the 2004–2010 Displaced Worker Surveys. Developing two measures of cross-occupational comparability, the results suggest that greater transferability of human capital across occupations plays a significant role in determining postdisplacement earnings.

Earnings losses of displaced workers and the business cycle: An analysis with administrative data

This paper examines the earnings losses of displaced workers over the business cycle. Long-term earnings losses for these workers during a recessionary period are 1.7 to 3.9 times larger than for those observed during a period of economic growth.

Job Displacement Risk and the Cost of Business Cycles

This paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk. The paper uses a simple macroeconomic model with incomplete markets to show that cyclical variations in the long-term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the variance of individual income changes is constant over the cycle. In addition to the theoretical analysis, this paper conducts a quantitative study of the cost of business cycles using empirical evidence on the long-term earnings losses of US workers. The quantitative analysis shows that realistic variations in job displacement risk generate sizable costs of business cycles, even though a second-moment analysis would suggest negligible costs. (JEL E21, E24, E32, J63)

The economic burden of carpal tunnel syndrome: Long‐term earnings of CTS claimants in Washington State

The long-term earnings losses borne by injured workers, beyond those covered by workers' compensation insurance, are rarely estimated. The post-claim earnings of a cohort of carpal tunnel syndrome (CTS) claimants are tracked over a period of 6 years and compared to the earnings of claimants with either upper extremity fractures or dermatitis. Quarterly earnings records of 4,443 workers in Washington State who filed claims with the State Fund in 1993 or 1994 for CTS are compared to those of 2,544 with upper-extremity fracture claims and 1,773 with medical-only dermatitis claims. Multivariate regression was used to identify the effect of injury type on earnings from that of other potential predictors. CTS claimants recover to about half of their pre-injury earnings level relative to that of comparison groups after 6 years; they also endured periods on time-loss three times longer than claimants with upper extremity fractures. CTS surgery claimants had better outcomes than those who did not have surgery. Earnings recovery fractions among CTS claimants were better for workers who: (1) were younger; (2) had stable pre-claim employment; (3) lived in the Puget sound area; (4) worked for large businesses; (5) worked in non-construction/transportation industries; or (6) were in the higher pre-injury earnings categories. Cumulative excess loss of earnings of the 4,443 CTS claimants was 197 million dollars to 382 million dollars over 6 years, a loss of 45,000-89,000 dollars per claimant. This underscores the importance of prevention, early diagnosis, and accommodation for return to work.

Estimating the returns to community college schooling for displaced workers

Abstract Studies show that high-tenure displaced workers typically incur substantial long-term earnings losses. As these losses have become increasingly apparent, policy makers have significantly expanded resources for retraining, much of which takes place in regular community college classes. To analyze the effectiveness of such training, we link administrative earnings records with the community college transcript records of workers displaced from jobs during the first half of the 1990s in Washington State. We explore several issues of statistical specification for regression models quantifying the impact of community college credits on earnings. These include (i) the need to allow for a transition period immediately after the end of workers’ schooling when their earnings may be temporarily depressed, (ii) whether earnings gains are strictly proportional to credits earned, and (iii) how to model worker-specific unobserved heterogeneity. In our preferred specification, we find that the equivalent of an academic year of community college schooling raises the long-term earnings of displaced workers by an average of about 9 percent for men and about 13 percent for women. However, these average returns mask substantial variation in the returns associated with different types of courses. On the one hand, we estimate that an academic year of more technically oriented vocational and academic math and science courses raise earnings by about 14 percent for men and 29 percent for women. On the other hand, we estimate that less technically oriented courses yield very low and possibly zero returns. About one third of the increase in earnings associated with more technically oriented vocational and academic math and science courses is estimated to be due to increases in wage rates, with the remainder attributable to increased hours of work.

Estimating the Returns to Community College Schooling for Displaced Workers

Studies show that high-tenure displaced workers typically incur substantial long-term earnings losses. As these losses have become increasingly apparent, policy makers have significantly expanded resources for retraining, much of which takes place in regular community college classes. To analyze the effectiveness of such training, we link administrative earnings records with the community college transcript records of workers displaced from jobs during the first half of the 1990s in Washington State. We explore several issues of statistical specification for regression models quantifying the impact of community college credits on earnings. These include (i) how to allow for a transition period immediately after the end of workers' schooling when their earnings may be temporarily depressed, (ii) whether earnings gains are strictly proportional to credits earned, and (iii) how to model worker-specific unobserved heterogeneity. In our preferred specification, we find that the equivalent of an academic year of community college schooling raises the long-term earnings of displaced workers by an average of about 9 percent for men and about 13 percent for women. However, these average returns mask substantial variation in the returns associated with different types of courses. On the one hand, we estimate that an academic year of more technically oriented vocational and academic math and science courses raise earnings by about 14 percent for men and 29 percent for women. On the other hand, we estimate that less technically oriented courses yield very low and possibly zero returns. About one third of the increase in earnings associated with more technically oriented vocational and academic math and science courses is estimated to be due to increases in wage rates, with the remainder attributable to increased hours of work.

Job Displacement

The past decade and a half has seen tremendous research growth in the area of job displacement. This paper discusses the state of knowledge on the issues and questions of job loss. The 1984-96 Displaced Worker Surveys are used to describe how the characteristics of displacement are changing to include more college educated, white collar, and nonmanufacturing workers. For many workers, the long-term earnings losses following displacement are large due to the loss of firm-specific human capital. More research is needed on the questions of the causes of job displacement and on the efficacy of employment and training programs.