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Explaining Wage Losses after Job Displacement: Employer Size and Lost Firm Rents

Daniel Fackler, Steffen Müller, Jens Stegmaier
IWH Discussion Papers, No. 32, 2017
Abstract
Why does job displacement, e.g., following import competition, technological change, or economic downturns, result in permanent wage losses? The job displacement literature is silent on whether wage losses after job displacement are driven by lost firm wage premiums or worker productivity depreciations. We therefore estimate losses in wages and firm wage premiums. Premiums are measured as firm effects from a two-way fixed-effects approach, as described in Abowd, Kramarz, and Margolis (1999). Using German administrative data, we find that wage losses are, on average, fully explained by losses in firm wage premiums and that premium losses are largely permanent. We show that losses in wages and premiums are minor for workers displaced from small plants and strongly increase with pre-displacement firm size, which provides an explanation for the large and persistent wage losses that have been found in previous studies mostly focusing on displacement from large employers.
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Who Buffers Income Losses After Job Displacement? The Role of Alternative Income Sources, the Family, and the State

Daniel Fackler, Eva Hank
IWH Discussion Papers, No. 28, 2016
Abstract
Using survey data from the German Socio-Economic Panel (SOEP), this paper analyses to what extent alternative income sources, reactions within the household context, and redistribution by the state attenuate earnings losses after job displacement. Applying propensity score matching and fixed effects estimations, we find high individual earnings losses after job displacement and only limited convergence. Income from selfemployment slightly reduces the earnings gap and severance payments buffer losses in the short run. On the household level, we find substantial and rather persistent losses in per capita labour income. We do not find that increased labour supply by other household members contributes to the compensation of the income losses. Most importantly, our results show that redistribution within the tax and transfer system substantially mitigates income losses of displaced workers both in the short and the long run whereas other channels contribute only little.
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Plant-level Employment Development before Collective Displacements: Comparing Mass Layoffs, Plant Closures, and Bankruptcies

Daniel Fackler, Steffen Müller, Jens Stegmaier
IWH Discussion Papers, No. 27, 2016
Abstract
To assess to what extent collective job displacements can be regarded as unanticipated exogenous shocks for affected employees, we analyze plant-level employment patterns before bankruptcy, plant closure without bankruptcy, and mass layoff. Utilizing administrative data covering all West German private sector plants, we find no systematic employment reductions prior to mass layoffs, a strong and long-lasting reduction prior to closures, and a much shorter shadow of death preceding bankruptcy. Our analysis of worker flows underlines that bankruptcies seem to struggle for survival while closures follow a shrinking strategy. We conclude that the scope of worker anticipation of upcoming job loss is smallest for mass layoffs and largest for closures without bankruptcy.
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Losing Work, Moving Away? Regional Mobility After Job Loss

Daniel Fackler, Lisa Hölscher
IWH Discussion Papers, No. 26, 2016
published in: LABOUR: Review of Labour Economics and Industrial Relations
Abstract
Using German survey data, we investigate the relationship between involuntary job loss and regional mobility. Our results show that job loss has a strong positive effect on the propensity to relocate. We also analyze whether the high and persistent earnings losses of displaced workers can in part be explained by limited regional mobility. Our findings do not support this conjecture as we find substantial long lasting earnings losses for both movers and stayers. In the short run, movers even face slightly higher losses, but the differences between the two groups of displaced workers are never statistically significant. This challenges whether migration is a beneficial strategy in case of involuntary job loss.
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