Working Paper: NBER ID: w28481
Authors: Gregor Jarosch
Abstract: Job loss comes with large present value earnings losses which elude workhorse models of unemployment and labor market policy. I propose a parsimonious model of a frictional labor market in which jobs differ in terms of unemployment risk and workers search off- and on-the-job. This gives rise to a job ladder with slippery bottom rungs where unemployment spells beget unemployment spells. I allow for human capital to respond to time spent out of work and estimate the framework on German Social Security data. The model captures the joint response of wages, employment, and unemployment risk to job loss which I measure empirically. The key driver of the “unemployment scar” is the loss in job security and its interaction with the evolution of human capital.
Keywords: job loss; unemployment; labor market; human capital; job security
JEL Codes: E24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job loss (J63) | present value earnings losses (J17) |
| job loss (J63) | wage drop (J31) |
| job loss (J63) | employment rate decline (J64) |
| employment rate decline (J64) | future job loss risk (J63) |
| job loss (J63) | human capital evolution (J24) |
| job loss (J63) | persistent response of employment to unemployment spells (J64) |
| job security loss (J63) | long-term scarring effects of job loss (J65) |