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

The Wage Impact of Mass Layoffs - Evidence from the Global Financial Crisis e61 MICRO NOTE | Number 17 | 5 December 2023 THE WAGE IMPACT OF MASS LAYOFFS EVIDENCE FROM THE GLOBAL FINANCIAL CRISIS Ian Hoefer Marti, Shuya Yang, Gianni La Cava, and Matt Nolan We investigate the wage losses associated with job displacement in Australia. [...] Wage scars from the GFC What was the impact of job displacement during the GFC on the average real wage earnings of displaced workers? To answer this question we compare the wage earnings trajectories for the 6,550 long-tenure workers that lost their jobs during a mass layoff in 2008/09 to other workers (Figure 1A).1 We focus on individuals who have been in the same job for at least five years (lo. [...] In dollar terms, the average displaced worker experiences a wage loss of $15,000 in the first year after the mass layoff event. [...] We investigate this by looking at the wage loss for individuals who are re-employed and remain in a job.3 The wage scar disappears within 4 years for displaced workers that return to paid work within a year (and remain employed Figure 2: Scarring for the re-employed* thereafter).4 Furthermore, for this group we observe a smaller initial wage scar - wages are 14% lower in the year after job loss re. [...] However, knowing the right policies to limit the cost of job loss for workers involves understanding the mechanisms behind the wage scar.