TY  - JOUR
AU  - Davis,Steven J.
AU  - Wachter,Till M. von
TI  - Recessions and the Cost of Job Loss
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17638
PY  - 2011
Y2  - December 2011
UR  - http://www.nber.org/papers/w17638
L1  - http://www.nber.org/papers/w17638.pdf
N1  - Author contact info:
Steven J. Davis
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7312
Fax: 773/834-0733
E-Mail: Steven.Davis@ChicagoBooth.edu

Till M. von Wachter
Department of Economics
University of California, Los Angeles
8283 Bunche Hall
MC 147703
Los Angeles, CA 90095
Tel: 310-825-5665
Fax: 310-825-9528
E-Mail: tvwachter@econ.ucla.edu
M2  - featured in NBER digest on 2012-04-01
AB  - We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of pre-displacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5% annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present value earnings losses associated with job displacement.  The model of Mortensen and Pissarides (1994) extended to include search on the job generates present value losses only one-fourth as large as observed losses. Moreover, present value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data.
ER  -