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Jel Classification:J64 

Working Paper
The effect of unemployment duration on future earnings and other outcomes
One of the distinguishing features of the Great Recession and its aftermath has been the spike in the number of individuals experiencing long-duration unemployment spells, defined as lasting more than 26 weeks. This paper analyzes the effect of unemployment duration on individual's future earnings and other outcomes, such as homeownership and wealth, using data from the Panel Study of Income Dynamics (PSID). The results show a negative relationship between a worker's most recent unemployment spell and his or her current earnings. The earnings of displaced workers do not catch up to those of their nondisplaced counterparts for nearly 20 years. The effect of unemployment on earnings is even more substantial for workers unemployed 26 weeks or more. Unemployment spells also negatively impact future homeownership?this finding suggests that the consequences of the recent spike in unemployment duration could affect more than individuals' expected lifetime earnings. Given the costs of long-term unemployment, policies aimed at reducing the unemployment rate?such as the Federal Reserve's quantitative easing program?could have the added benefit of limiting the negative consequences of long-duration unemployment through fostering faster re-employment.
AUTHORS: Cooper, Daniel H.
DATE: 2014-01-13

Working Paper
Labor market polarization over the business cycle
One of the most important long-run trends in the U.S. labor market is polarization, defined as the relative growth of employment in high-skill jobs (such as management and technical positions) and low-skill jobs (such as food-service and janitorial work) amid the concurrent decline in middle-skill jobs (such as clerical, construction, manufacturing, and retail occupations). Middle-skill job losses typically result from outsourcing labor to lower-wage countries or from substituting automated technologies for routine tasks. Economists are now beginning to study how long-run polarization might be related to short-run business cycles, but doing so requires the construction of quarterly datasets with consistent occupational data over long periods of time. The authors of this paper construct a new dataset of occupational employment and unemployment that extends from 1947:Q3 to 2013:Q4. Using this dataset, along with more-recent individual-level data from the Current Population Survey, the authors study how recessions typically affect employment in various occupations, what employment alternatives are available to middle-skill workers who become unemployed, and whether the ongoing erosion of middle-skill job opportunities is related to long-term declines in labor force participation among men.
AUTHORS: Ryan, Richard W.; Foote, Christopher L.
DATE: 2014-12-26

Working Paper
Job Ladders and Earnings of Displaced Workers
Workers who suffer job displacement experience surprisingly large and persistent earnings losses. This paper proposes an explanation for this robust empirical puzzle in a model of search over match-quality with a significant job ladder. In addition to capturing the depth and persistence of displaced-worker-earnings losses, the model is able to match a) separation rates by tenure; b) the empirical decomposition of earnings losses into reduced wages and employment; c) observed wage dispersion; d) the pattern of employer-to-employer transitions after layoff, and e) the degree of serial correlation in separations.
AUTHORS: Krolikowski, Pawel
DATE: 2015-09-03

Working Paper
Lessons for Forecasting Unemployment in the U.S.: Use Flow Rates, Mind the Trend
This paper evaluates the ability of autoregressive models, professional forecasters, and models that leverage unemployment flows to forecast the unemployment rate. We pay particular attention to flows-based approaches?the more reduced form approach of Barnichon and Nekarda (2012) and the more structural method in Tasci (2012)?to generalize whether data on unemployment flows is useful in forecasting the unemployment rate. We find that any approach that leverages unemployment inflow and outflow rates performs well in the near term. Over longer forecast horizons, Tasci (2012) appears to be a useful framework, even though it was designed to be mainly a tool to uncover long-run labor market dynamics such as the ?natural? rate. Its usefulness is amplified at specific points in the business cycle when unemployment rate is away from the longer-run natural rate. Judgmental forecasts from professional economists tend to be the single best predictor of future unemployment rates. However, combining those guesses with flows based approaches yields significant gains in forecasting accuracy.
AUTHORS: Meyer, Brent; Tasci, Murat
DATE: 2015-02-13

Working Paper
Why Do Earnings Fall with Job Displacement?
The earnings of workers are reduced for many years after being displaced from their jobs, and those workers and their families face increased risk of other problems as well. The ills suffered by displaced workers motivated several recent expansions of government programs, including the unemployment insurance system, and have spurred calls for wage insurance that would provide longerrun earnings replacement. However, while the magnitude of the losses is relatively clear, the theory of why displacement matters is scattered and somewhat undeveloped. Much of the policy discussion appears to interpret displacementinduced losses through the lens of specifi c human capital theory, and there is considerable empirical support for that model. But there are several other theories of why job displacement is costly. This paper reviews theories of costly job displacement and discusses their consistency with the available empirical evidence. We find that theories of human capital and matching are an important perspective on the losses of displaced workers, but we cannot rule out important roles for other theories, some of which suggest different policy responses.
AUTHORS: Carrington, William J.; Fallick, Bruce C.
DATE: 2014-06-02

Working Paper
Choosing a Control Group for Displaced Workers
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.
AUTHORS: Krolikowski, Pawel
DATE: 2016-02-02

Working Paper
Unemployment Flows, Participation, and the Natural Rate for Turkey
This paper measures flow rates into and out of unemployment for Turkey and uses them to estimate the unemployment rate trend, that is, the unemployment rate to which the economy converges in the long run. In doing so, the paper explores the role of labor force participation in determining the unemployment rate trend. We find an inverse V-shaped pattern for Turkey?s unemployment rate trend over time, currently between 8.5 percent and 9 percent, with an increasing labor market turnover. We also find that allowing an explicit role for participation changes the results substantially, initially reducing the ?natural? rate but getting closer to the baseline over time. Finally, we show that this parsimonious model can be used to forecast unemployment in Turkey with relative ease and accuracy.
AUTHORS: Sengul, Gonul; Tasci, Murat
DATE: 2014-10-27

Working Paper
Parental Proximity and Earnings after Job Displacements
Young adults, ages 25 to 35, who live in the same neighborhoods as their parents experience stronger earnings recoveries after a job displacement than those who live farther away. This result is driven by smaller on-impact wage reductions and sharper recoveries in both hours and wages. We show that geographic mobility, different job search durations, housing transfers, and ex-ante differences between individuals are unlikely explanations. Our findings are consistent with a framework in which some individuals living near their parents face a better wage-offer distribution, though we find no direct evidence of parental network effects.
AUTHORS: Coate, Patrick; Zabek, Michael A.; Krolikowski, Pawel
DATE: 2017-11-29

Working Paper
Job Heterogeneity and Aggregate Labor Market Fluctuations
This paper disciplines a model with search over match quality using microeconomic evidence on worker mobility patterns and wage dynamics. In addition to capturing these individual data, the model provides an explanation for aggregate labor market patterns. Poor match quality among first jobs implies large fluctuations in unemployment due to a responsive job destruction margin. Endogenous job destruction generates a burst of layoffs at the onset of a recession and, together with on-the-job search, generates a negative comovement between unemployment and vacancies. A significant job ladder, consistent with the empirical wage dispersion, provides ample scope for the propagation of vacancies and unemployment.
AUTHORS: Krolikowski, Pawel
DATE: 2019-02-01

Working Paper
Job-to-Job Flows and the Consequences of Job Separations
A substantial empirical literature documents large and persistent average earnings losses following job displacement. Our paper extends the literature on displaced workers by providing a comprehensive picture of earnings and employment outcomes for all workers who separate. We show that for workers not recalled to their previous employer, earnings losses follow separations in general, as opposed to displacements in particular. The key predictor of earnings losses is not displacement but the length of the nonemployment spell following job separation. Moreover, displaced workers are no more likely to experience a substantial spell of nonemployment than are other non-recalled separators. Our results suggest that future research on the consequences of job loss should work to disentangle the strong association between nonemployment and earnings losses, as opposed to focusing specifically on displaced workers.
AUTHORS: Haltiwanger, John; McEntarfer, Erika; Fallick, Bruce C.; Staiger, Matthew
DATE: 2019-12-13

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