The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany

20.500.12592/67p9hk

The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany

16 Jun 2022

We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large part of the long-term earnings losses and their cyclicality is driven by declines in wages. Key to these long-lasting wage declines and their cyclicality are changes in employer characteristics, as displaced workers switch to lower-paying firms. Changes in characteristics of workers or displacing firms explain little of the cyclicality, though non-employment durations correlated with losses in employer effects play a role.
labor compensation labor economics labor studies unemployment and immigration

Authors

Johannes F. Schmieder, Till M. von Wachter, Jörg Heining

Acknowledgements & Disclosure
We would like to thank the Research Data Center of the Institute for Employment Research (IAB) for generously providing data and support by running programs remotely. We would like to thank Stefan Bender, Stephane Bonhomme, David Card, Pat Kline, Kevin Lang, Daniele Paserman, Thibaut Lamadon, Raffaele Saggio as well as seminar participants at Boston University, the Richmond Fed, University of Mannheim, UC Berkeley, Harvard University, the New York Fed, University of Siena, Aarhus University, University of Trier, as well as participants at the All California Labor Conference, the NBER Labor Studies Meeting, the AEA Meetings in Chicago, the Bank of Italy/CEPR Conference, University of British Columbia, Briq Workshop on Firms and Inequality in Bonn, and the meetings of Verein fuer Sozialpolitik, the European Society for Population Economics (ESPE), European Association of Labour Economists (EALE), and the Italian Association of Labour Economics (AIEL) for many helpful comments. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
DOI
https://doi.org/10.3386/w30162
Published in
United States of America