Involuntary Unemployment and the Labor Market Returns to Interim Jobs

Abstract

I investigate the wage and employment effects of taking up interim jobs after displacement. Proposing a novel approach, I decompose the wage losses along the distribution into a channel due to the take up of interim employment and a channel which accounts for all other factors. I find that being employed in an interim job has negative effects on future wages over the whole distribution. I provide evidence that this is due to a trade-off between the probability of finding stable employment and higher wages. Assessing the sensitivity of my results, I show that they are robust to specific failures of my identifying assumptions.

Keywords: Job Loss, Unemployment, Interim Job, Wage Ladder, Wage Loss, Quantile Treatment Effects, Direct Effect, Indirect Effect, Causal Channels

JEL Classification: C21, C31, J31, J63, J65