Recessions and the Costs of Job Loss

By Steven J. Davis, Till M. von Wachter. Brookings papers on economic activity, 2011

625 citations recorded by the source corpus.

We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records from 1974 to 2008. In present-value terms, men lose an average of 1.4 years of predisplacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of predisplacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5 percent annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts, and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present-value earnings losses associated with job displacement. The 1994 model of Dale Mortensen and Christopher Pissarides, extended to include search on the job, generates present-value losses that are only one-fourth as large as observed losses. Moreover, present-value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data.

Subfields: Accounting, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/70e20b70e072dd2dcb6cab5bebbd2b1558b89f3e

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Citations in the corpus

Debt and the Consumption Response to Household Income Shocks (2015, neutral): “[9] Davis, Steven J.”
Environmental Regulation and Green Skills: An Empirical Exploration (2018, background): “At the same time, however, previous research ignores that job displacement may entail various types of adjustment costs (Smith 2015) such as long-term earnings losses (Davis and von Wachter 2011; Walker 2013) or the obligation to migrate (Kumioff et al. 2015).”