Working Paper

Choosing a Control Group for Displaced Workers


Abstract: The vast majority of studies on the earnings of displaced workers use a control group of continuously employed workers to examine the effects of initial displacements. This approach implies long-lived earnings reductions following displacement even if these effects are not persistent, overstating the losses relative to the true average treatment effect. This paper?s approach isolates the impact of an average displacement without imposing continuous employment on the control group. In a comparison of the standard and alternative approaches using PSID data, the estimated long-run earnings losses fall dramatically from 25 percent to 5 percent. Model simulations reinforce these empirical findings.

Keywords: treatment event; earnings; Displacement; control group;

JEL Classification: J64; J63; E24;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2016-02-02

Number: 1605

Pages: 48 pages