The Wage Impact of Mass Layoffs - Evidence from the Global Financial Crisis

Our rationale for showing expected earnings in the note was because the scar reflects the loss in potential earnings for the individuals - not a loss relative to their earnings at a given point in time. [...] As a result, we maintained the traditional event study assumption of the pre-period reflecting the year prior to the treatment - in this case the mass layoff. [...] As a result, the inclusion of job losers in the control group may understate the average scar from job loss - an individual is included in the control if they report wage income in the Financial Year, with no requirement to be at the same employer in the next period. [...] Compared to the matched level estimates, the transformation increases the wage earnings scar from 13% to 29% at the time of the event. [...] The decision about how to scale has a significant effect on the estimated income decline from job loss - specifically, the larger the scale of the variables the greater weight is placed on the extensive margin increasing the average estimated percentage decline from individuals exiting work.