Working Paper 2018-02: Marta Lachowska, Alexandre Mas, Stephen Woodbury

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Marta Lachowska, Senior Economist, W.E. Upjohn Institute for Employment Research
Alexandre Mas, Professor of Economics and Public Affairs, Princeton University
Stephen A. Woodbury, Professor of Economics, Michigan State University


We estimate the earnings losses of a cohort of workers displaced during the Great Recession and decompose those long-term losses into components attributable to fewer work hours and to reduced hourly wage rates. We also examine the extent to which the reduced earnings, work hours, and wages of these displaced workers can be attributed to factors specific to pre- and post-displacement employers; that is, to employer-specific fixed effects. The analysis is based on employer-employee linked panel data from Washington State assembled from 2002-2014 administrative wage and unemployment insurance (UI) records. Three main findings emerge from the empirical work. First, five years after job loss, the earnings of these displaced workers were 16 percent less than those of comparison groups of nondisplaced workers. Second, earnings losses within a year of displacement can be explained almost entirely by lost work hours; however, five years after displacement, the relative earnings deficit of displaced workers can be attributed roughly 40 percent to reduced hourly wages and 60 percent to reduced work hours. Third, for the average displaced worker, lost employer-specific premiums account for about 11 percent of long-term earnings losses and nearly 25 percent of lower long-term hourly wages. For workers displaced from employers paying top-quintile earnings premiums (about 60 percent of the displaced workers in the sample), lost employer specific premiums account for more than half of long-term earnings losses and 83 percent of lower long-term hourly wages.