Job displacement is known to cause significant and persistent earnings losses. A leading theory ties these adverse effects to the loss of industry-specific human capital, but supporting evidence is lacking. This paper proposes a new method to estimate the demand for workers' industry-specific skills, and tests this theory by examining how specialization affects displacement costs across different industry conditions. In shrinking industries, workers with industry-specific occupations suffer substantially greater long-term losses than those in less specialized occupations. These losses are driven by persistent employment effects. Within-firm analysis shows that losses of firm wage premiums do not explain these patterns.
We study the spillover effects of a policy that periodically adjusts the level of the minimum monthly earnings (ME) in Chile. We exploit an unexpected delay in the schedule of adjustments to estimate instantaneous spillovers ranging up to 50% above the ME. These are observed in similar magnitudes in firms with and without ME earners, suggesting an overall indexation to the ME in the economy. We discuss the role of relative pay concerns and employers’ incentives to pay competitive wages as potential explanations. An interview with an HR manager at a large retailer provides support for these mechanisms.
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