Working Paper: NBER ID: w7218
Authors: Wouter J. Den Haan; Garey Ramey; Joel Watson
Abstract: This paper evaluates a class of endogenous job destruction models based on how well they explain the observed experiences of displaced workers. We show that pure reallocation models in which relationship-specific productivity drifts downward over time are difficult to reconcile with the evidence on postdisplacement wages and displacement rates. Pure reallocation models with upward drift can explain the evidence, but implausibly large and persistent negative productivity shocks are required to generate displacements. Combining upward drift with outside benefits or moral hazard as additional motives for displacement makes it possible to explain the evidence with much smaller shocks. Propagation of aggregate shocks, welfare implications of displacement, upgrade of relationships in lieu of displacement, and learning effects are also discussed.
Keywords: No keywords provided
JEL Codes: J31; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity shocks (O49) | displacement rates (J63) |
| downward productivity drift (O49) | insufficient explanation of observed post-displacement wages (J31) |
| upward productivity drift (O49) | displacement rates (J63) |
| external benefits or moral hazard (D62) | displacement (J63) |
| upward drift + external benefits or moral hazard (D62) | feasible explanation of displacement evidence (J63) |