American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany
American Economic Review
vol. 113,
no. 5, May 2023
(pp. 1208–54)
Abstract
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. These losses increase with duration of nonemployment. Changes in characteristics of displaced workers or displacing firms, and other post-job loss career outcomes explain little of the cyclicality.Citation
Schmieder, Johannes F., Till von Wachter, and Jörg Heining. 2023. "The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany." American Economic Review, 113 (5): 1208–54. DOI: 10.1257/aer.20200252Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J31 Wage Level and Structure; Wage Differentials
- J63 Labor Turnover; Vacancies; Layoffs
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings