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Worker Adjustment to Economic Shocks

Paper Session

Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM

Swissotel Chicago, Zurich E
Hosted By: American Economic Association
  • Chair: Steffen Mueller, Halle Institute for Economic Research

Industry Mix, Local Labor Markets, and the Incidence of Trade Shocks

Steffen Mueller
,
Halle Institute for Economic Research
Jens Stegmaier
,
IAB Nuremberg
Moises Yi
,
University of California-Berkeley

Abstract

We analyze the roles that skill transferability and the local industry mix have on the adjustment costs of workers affected by a negative trade shock. Using rich administrative data from Germany, we construct novel measures of economic distance between sectors based on the notion of skill transferability. We combine these distance measures with sectoral employment shares in German regions to construct an index of labor market flexibility. This index captures the degree to which workers from a particular industry will be able to reallocate into other jobs. We then study the role of labor market flexibility on the effect of import shocks on the earnings and the employment outcomes of German manufacturing workers. Among workers living in inflexible labor markets, the difference between a worker at the 75th percentile of industry import exposure and one at the 25th percentile of exposure amounts to an earnings loss ranging from 9 to 12% of initial annual income (over a 10 year period). The earning losses of workers living in flexible regions are much smaller (3.5 to 4%). These findings are robust to controlling for a wide array of region level characteristics, including region size and overall employment growth. Taken together, our findings indicate that the industry composition of local labor markets plays an important role on the adjustment processes of workers.

Adjusting to Globalization - Evidence From Worker-Establishment Matches in Germany

Wolfgang Dauth
,
University of Wuerzburg and Institute for Employment Research
Sebastian Findeisen
,
University of Mannheim and CEPR
Jens Suedekum
,
University of Duesseldorf and Center for Economic and Policy Research

Abstract

We exploit rich worker-establishment data to trace the impact of rising international trade exposure in the job biographies of roughly 1.2 million manufacturing workers in Germany (1990-2010). Import penetration has substantial “push effects”: It reduces earnings, and induces workers to leave the exposed industries. The industry movers typically perform worse than comparable stayers who keep their initial jobs, but this is different for highly able workers who benefit from mobility ex post. Export opportunities, by contrast, have only little “pull effects”. Earnings gains arise within job spells, or through intra-industry reallocations, but there is little evidence for sorting into those industries.

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

Jorg Heining
,
IAB Nuremberg
Johannes F. Schmieder
,
Boston University
Till M. von Wachter
,
University of California-Los Angeles

Abstract

We document the costs of job loss to displaced workers over the business cycle and its sources using administrative data from Germany. Losses in annual earnings in Germany after displacement are large, persistent, and highly cyclical, nearly doubling in size during economic downturns. We show that part of these losses and their cyclicality is driven by unemployment. As a result, unemployment insurance (UI) plays an important role in buffering the effect of job displacements, especially in recessions. However, the longer-tem earnings losses we find are mainly driven by declines in wages, and hence UI benefits do little to offset life-time losses in earnings. Our findings results suggest that an important factor behind the long-lasting declines in wages and the cyclicality of wage losses at job displacement are changes in employer characteristics. Workers switch to smaller paying firms after job displacement, in particular in recessions.
Discussant(s)
David Dorn
,
University of Zurich
Cristina Tello-Trillo
,
U.S. Census Bureau
Steffen Mueller
,
Halle Institute for Economic Research
JEL Classifications
  • F6 - Economic Impacts of Globalization
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers