Research
Working Papers
It is well established that job displacement leads to large and persistent earnings losses, but the reasons for these long-term losses remain unclear. The leading theory ties earnings losses to the demand laid-off workers face for their industry-specific human capital. In this paper, I propose a method for estimating the demand for workers’ industry-specific skills. I proxy for the worker’s skill set with her occupation, and measure how industry-specific her occupation is, based on the share of the occupation that is employed in her industry. The demand for the worker’s industry-specific skills is then estimated by the industry growth rate. Applying this measure, I test for heterogeneity in the costs of displacement for manufacturing workers in Israel. I show that workers with highly industry-specific occupations that were laid off from shrinking industries suffer from substantially greater losses in earnings, as predicted by the theory. Within shrinking industries, an increase of one Std Dev in the level of an occupation’s industry-specificity equals one-third of the average treatment effect of displacement in those industries. These losses in earnings are driven by a persistent effect on employment, as workers with industry-specific occupations are 2.5 times more likely to exit the labor market in the years following displacement.
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.