Abstract:
Involuntary job loss in administrative data is commonly identified
by focusing on mass-layoffs or plant closures. However, such events
usually do not happen without prior knowledge, which potentially
leads to selection in the labor turnover of distressed firms. We find
that workers separating from closing plants up to 2 quarters before
closure are associated with significantly lower displacement costs and
on average significantly higher pre-closure earnings levels as opposed
to ultimately displaced workers. Furthermore, our results indicate
that displaced workers with high pre-closure earnings experience significantly lower reductions in future employment probabilities. These
findings suggest that compositional differences cause estimated displacement costs to differ between early leavers and ultimately displaced workers. Focusing exclusively on the latter group would lead
to an overestimation of displacement costs.
