Sources of displaced workers’ long-term earnings losses

We estimate the magnitudes of lost earnings, reduced work hours, and lower wage rates of workers displaced during the Great Recession using linked employer-employee panel data. We find that displaced workers’ substantial earnings losses occur mainly because hourly wage rates drop at the time of displacement and recover sluggishly at best. Further, lost employer-specific premiums play a minor role in explaining displaced workers’ losses, accounting for 11 percent of average earnings losses and 25 percent of lower hourly wages. The estimates point to lost specific skills or lost favorable employer-employee matches as principal sources of displaced workers’ earnings losses.

This paper was published in the American Economic Review (opens in a new tab) in October 2020 (opens in a new tab).