Earnings losses and labor mobility over the life-cycle

Jung, Philip and Kuhn, Moritz (2012): Earnings losses and labor mobility over the life-cycle.

Abstract

Extensive literature demonstrates that workers with high tenure suffer large and persistent earnings losses when they are displaced. We study the reasons behind these losses in a tractable search model that includes a lifecycle dimension, endogenous job mobility, and worker- and match-heterogeneity. The model jointly explains key characteristics of the U.S. labor market such as large average transition rates, a large share of stable jobs, and earnings losses after displacement. We decompose earnings losses and find that only 50% result from wage loss, and endogenous reactions and selection account for the remainder. These findings have important implications for welfare costs of displacement and labor market policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Earnings Losses; Lifecycle; Labor-Market Transitions; Turbulence
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

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