Working Paper: CEPR ID: DP17746
Authors: Richard Audoly; Federica De Pace; Giulio Fella
Abstract: High-tenure workers who lose their jobs experience a large and prolonged fall in wages and earnings. The aim of this paper is to understand and quantify the forces behind this empirical regularity. We propose a structural model of the labor market with heterogeneous firms, on-the-job search and accumulation of specific and general human capital. Jobs are destroyed at an endogenous rate due to idiosyncratic productivity shocks and the skills of workers depreciate during periods of non-employment. The model is estimated on German Social Security data. By jointly matching moments related to workers’ mobility and wages, the model can replicate the size and persistence of the losses in earnings and wages observed in the data. We find that the loss of a job with a more productive employer is the primary driver of the cumulative wage losses following displacement (about 50 percent), followed by the loss of firm-specific human capital (about 30 percent).
Keywords: earnings losses upon displacement; human capital; job search
JEL Codes: J24; J31; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Loss of a job with a productive employer (J63) | Cumulative wage losses (J17) |
| Loss of firm-specific human capital (J63) | Cumulative wage losses (J17) |
| Job displacement (J63) | Reemployment at less productive firms (J63) |
| Depreciation of general skills during unemployment (J64) | Wage losses (J31) |
| Loss of specific skills not transferable to new employers (J62) | Wage losses (J31) |
| Cumulative impact of these factors (F62) | Long-term reductions in earnings (J39) |