Recessions and the Cost of Job Loss

Steven Davis and Till von Wachter

No 17638, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement 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 pre-displacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5% 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 model of Mortensen and Pissarides (1994) extended to include search on the job generates present value losses 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.

JEL-codes: E24 J3 J6 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (129)

Published as Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 1-72.

Downloads: (external link)
http://www.nber.org/papers/w17638.pdf (application/pdf)

Related works:
Journal Article: Recessions and the Costs of Job Loss (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17638

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17638

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).