Job Loss: Consequences and Labor Market Policy

Sammanfattning: Essay I: This paper takes a novel approach to estimating the effects of involuntary job loss on future earnings, wages and employment. Whereas the previous literature has relied on mass layoffs and plant closures for exogenous variation in displacement, I use the fact that who is laid off is often determined by a seniority rule, specifically the last-in-first-out (LIFO) rule. This feature enables me to study also smaller sized layoffs affecting a broader set of workers. Using matched employer-employee data from Sweden, in combination with detailed individual-level data 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 displaced workers on average suffer large initial earnings losses of about 38 percent, but in contrast to previous studies, earnings recover fully within 7 years. I then exploit the heterogeneity across layoffs to examine when, and under what circumstances, the cost of displacement are most persistent. I show that persistent earnings losses are mainly associated with very large layoff events and that a substantive share of these losses are attributable to general equilibrium effects.