Do We Know Why Earnings Fall with Job Displacement?

After being displaced from their jobs, workers experience reduced earnings for many years and are at greater risks of other problems as well. The ills suffered by displaced workers motivated several recent expansions of government programs, including the unemployment insurance system, and have spurred calls for wage insurance that would provide longer-run earnings replacement. However, while the average size and the individual characteristics associated with the losses are relatively clear, the theory of displacement-induced earnings loss is scattered. Much of the policy discussion appears to interpret displacement-induced losses through the lens of specific human capital theory, in which skills are specific to jobs, locations, industries, or occupations, and that model has considerable empirical support. Assistance for displaced workers may improve well-being in that model since it insures workers against the risk that their consumption of goods and services might fall for idiosyncratic reasons and, as a consequence, allows workers to make more productive but higher-risk career choices. But there are other credible theories of costly job displacement that have different causal mechanisms, different interpretations and different policy implications. This paper reviews theories of costly job displacement and discusses their consistency with the available empirical evidence. We find that while specific human capital is important, we cannot rule out important roles for other theories

Do We Know Why Earnings Fall with Job Displacement?

After being displaced from their jobs, workers experience reduced earnings for many years and are at greater risks of other problems as well. The ills suffered by displaced workers motivated several recent expansions of government programs, including the unemployment insurance system, and have spurred calls for wage insurance that would provide longer-run earnings replacement. However, while the average size and the individual characteristics associated with the losses are relatively clear, the theory of displacement-induced earnings loss is scattered. Much of the policy discussion appears to interpret displacement-induced losses through the lens of specific human capital theory, in which skills are specific to jobs, locations, industries, or occupations, and that model has considerable empirical support. Assistance for displaced workers may improve well-being in that model since it insures workers against the risk that their consumption of goods and services might fall for idiosyncratic reasons and, as a consequence, allows workers to make more productive but higher-risk career choices. But there are other credible theories of costly job displacement that have different causal mechanisms, different interpretations and different policy implications. This paper reviews theories of costly job displacement and discusses their consistency with the available empirical evidence. We find that while specific human capital is important, we cannot rule out important roles for other theories

Using Unexpected Recalls to Examine the Long-Term Earnings Effects of Job Displacement

This paper examines the long-term earnings consequences of permanent layoffs initiated during the early 1990s, using a sample of Massachusetts workers who enrolled in Job Training Partnership Act Title III programs, and who remained strongly attached to the state's labor force. The comparison group is formed by workers who were unexpectedly recalled. On average, recalled workers incurred substantial annual earnings reductions upon reemployment. Nevertheless, one decade later, permanently displaced workers were still earning between 11 and 17 percent less per year than recalled workers with comparable pre-layoff skills and experience. Workers with limited education experienced particularly large earnings reductions from permanent job loss

What Do Unions Do for Economic Performance?

Twenty years have passed since Freeman and Medoff's What Do Unions Do? This essay assesses their analysis of how unions in the U.S. private sector affect economic performance - productivity, profitability, investment, and growth. Freeman and Medoff are clearly correct that union productivity effects vary substantially across workplaces. Their conclusion that union effects are on average positive and substantial cannot be sustained, subsequent evidence suggesting an average union productivity effect near zero. Their speculation that productivity effects are larger in more competitive environments appears to hold up, although more evidence is needed. Subsequent literature continues to find unions associated with lower profitability, as noted by Freeman and Medoff. Unions are found to tax returns stemming from market power, but industry concentration is not the source of such returns. Rather, unions capture firm quasi-rents arising from long-lived tangible and intangible capital and from firm-specific advantages. Lower profits and the union tax on asset returns leads to reduced investment and, subsequently, lower employment and productivity growth. There is little evidence that unionization leads to higher rates of business failure. Given the decline in U.S. private sector unionism, I explore avenues through which individual and collective voice might be enhanced, focusing on labor law and workplace governance defaults. Substantial enhancement of voice requires change in the nonunion sector and employer as well as worker initiatives. It is unclear whether labor unions would be revitalized or further marginalized by such an evolution

Disaggregating the Matching Function

The aggregate matching (hiring) function relates gross hires to labor market tightness. Decompositions of aggregate hires show how the hiring process differs across different groups of workers and of firms. Decompositions include employment status in the previous month, age, gender and education. Another separates hiring between part-time and full-time jobs, which show different patterns in the current recovery. Shift-share analyses are done based on industry, firm size and occupation to show what part of the residual of the aggregate hiring function can be explained by the composition of vacancies. The hiring process appears to shift as a recovery starts, coinciding with shifts in the Beveridge curve. The paper also discusses some issues in the modeling of the labor market

Part-Time Work and Industry Growth

The popular impression that employment in the U.S. has become more part-time in recent years may be driven by a tendency for faster-growing industries to use relatively more part-time work. This paper documents this association for the period 1983-1993, and demonstrates that it is robust to questions about how to measure industry growth and parttime intensity. A similar relationship can be discerned in several other countries. However, judging from data from the 1930s on, the association does not emerge clearly in the United States until the 1980s, suggesting that part-time work and industry growth are not intrinsically related. Moreover, both the relative growth rates and the relative part-time intensities of industries have changed markedly over the post-war period. There is no indication that part-time work in fast-growing industries is more likely to be involuntary, although this may be true for entering workers, nor has there been any trend in that direction. JEL Classification: J2

Part-time work and industry growth

The impression that employment in the U.S. has become more part-time intensive may be driven by a tendency for faster-growing industries to use more part-time work. I document this association over 1983-1993, and demonstrate that it is robust to alternative measures. Similar relationships are discernable in several countries. However, the association does not emerge clearly in the U.S. until the 1980s. Moreover, both relative growth rates and relative part-time intensities of industries have changed markedly since 1940. Part-time work at fast-growing industries is not more likely to be involuntary, although this may be true for entering workers, nor is there a trend in that direction.Employment (Economic theory) ; Industries