What Happens to Wages after Displacement?

David S. Kaplan, Gabriel Martínez González and Raymond Robertson

Chapter 16 in Not Just Neighbors:The Remarkable Economic Relationships in North America, 2026, pp 529-575 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines wage changes following worker displacement in Mexico and studies how local labor market conditions shape post-displacement outcomes. Seminal studies find large and persistent earnings losses in the U.S. and the EU. Evidence from other countries is mixed. We present a simple model that links external labor market conditions to post-displacement wages that shows how post-displacement wages may rise or fall. We evaluate these predictions with matched employer employee administrative records from the Mexican Social Security Institute covering nearly the entire formal manufacturing sector between 1993 and 2000. Estimating wage trajectories before and after displacement using established methods reveals substantial heterogeneity in wage outcomes. Workers displaced during the 1995 recession experience large and persistent wage losses. Workers displaced during periods of economic expansion often face smaller losses and sometimes earn higher wages. Local unemployment strongly influences these outcomes. The findings highlight the importance of local economic conditions in shaping the wage consequences of job displacement.

Keywords: US–Mexico Trade; Economic Integration; North American Competitiveness; USMCA / NAFTA; Global Supply Chains; Migration and Labor Markets; Wage Inequality; Cross-border Economics; Trade Policy and Development; Regional Economic Integration; US–Mexico Relations; Bilateral Trade Flows; Border Economy; Globalization and Inequality; Policy Responses to Trade Shocks (search for similar items in EconPapers)
JEL-codes: F13 F15 F22 J61 O24 P16 P52 (search for similar items in EconPapers)
Date: 2026
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