JOB MARKET PAPPER : Saved by the LIFO rule? – Effects of Displacement for Individuals at the Margin of Lay-off
This paper takes a novel approach in estimating the effects of involuntary job loss on future earnings, wages and employment. Whereas previous literature has relied on mass layoffs and plant closures for exogenous variation in displacement, comparing adversely selected workers across firms, I exploit the fact that who is laid off within a downsizing establishment is often determined by seniority rules, specifically the last-in-first-out (LIFO) principle. Using matched employer-employee data from Sweden, with detailed information on job start and end dates, in combination with a unique individual level dataset on layoff notifications, I rank workers according to relative seniority and identify establishment/occupation specific discontinuities in the probability of displacement which I exploit in a regression discontinuity framework. I find that the average displaced worker suffer initial earnings losses of about 50-60 percent of prior levels but recover fully within 5-7 years. As the latter finding stands in contrast to previous literature, I unpack the earnings effect by taking advantage of worker heterogeneity in firm specific tenure, task content as well as the size and timing of the layoff across threshold. I show that persistent earnings losses can mainly be found in sub samples of workers with high tenure experiencing large layoffs which have been the focus of previous studies. This suggests that the consensus view of job loss creating lasting scars and not temporary blemishes should be complemented with the caveat of only being accurate for particular layoffs and groups of workers which are not representative for the average displaced worker.
Extended Unemployment Benefits and the Hazard to Employment [Working Paper] [Slides]
Previous studies estimating the effect of generosity of unemployment insurance (UI) on unemployment duration has found that as job-seekers approach benefit exhaustion the probability of leaving unemployment increases sharply. Such “spikes” in the hazard rate has generally been interpreted as shirking among job-seekers. This, however, has been called into question by (Card et al. 2007b); claiming that these spikes rather reflect flight out of the labor force as benefits run out. Using exogenous variation in the potential duration of UI in Sweden, I estimate the effect of a 30 week extension of UI on duration in unemployment and on UI. Moreover, I investigate whether job-seekers manipulate the hazard to employment is such that it coincides with benefit exhaustion. I find that although increasing potential UI duration by 30 weeks increases actual take up by about 2.7 weeks, overall duration in unemployment and the probability of employment is largely unaffected. Further, I find no evidence of job-seekers timing reemployment such that it coincides with UI benefit exhaustion.