The Firm&Apos;S Role in Displaced Workers&Apos; Earnings Losses

68 Pages Posted: 9 Dec 2019 Last revised: 24 Jun 2021

Date Written: December 2019


We use employer-employee matched administrative data from Ohio to study the role of firm pay premiums in explaining the large, persistent earnings losses of displaced workers. We estimate that earnings for displaced workers from the mid-2000s are depressed by 22 percent after four years, consistent with prior work. Drawing upon empirical approaches from the displaced worker and firm heterogeneity literature, we then estimate how much of this earnings loss can be explained by the forfeiture of a favorable employer-specific pay premium. Our preferred estimate attributes one quarter (24 percent) of long-run earnings deficits to lost firm pay premiums. Such firm rents explain up to half the earnings deficits for those laid off from manufacturing firms and employers with particularly generous pay policies. We test for sensitivity to different samples from which we derive firm specific-pay premiums and definitions of displacement. Our estimates persist in a narrow range between 16 and 24 percent for the share explained by firm rents, adding to the evidence that firm rents do not explain the majority of earnings or wage losses sustained by displaced workers in the United States.

Suggested Citation

Scott-Clayton, Judith and Moore, Brendan, The Firm&Apos;S Role in Displaced Workers&Apos; Earnings Losses (December 2019). NBER Working Paper No. w26525, Available at SSRN:

Judith Scott-Clayton

Columbia University ( email )

Brendan Moore (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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