The Costs of Job Displacement Over the Business Cycle and its Sources: Evidence from Germany

57 Pages Posted: 20 Jun 2022 Last revised: 1 Jun 2023

See all articles by Johannes F. Schmieder

Johannes F. Schmieder

Boston University - Department of Economics; IZA; National Bureau of Economic Research (NBER)

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics

Joerg Heining

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written: June 2022

Abstract

We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large part of the long-term earnings losses and their cyclicality is driven by declines in wages. Key to these long-lasting wage declines and their cyclicality are changes in employer characteristics, as displaced workers switch to lower-paying firms. Changes in characteristics of workers or displacing firms explain little of the cyclicality, though non-employment durations correlated with losses in employer effects play a role.

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Suggested Citation

Schmieder, Johannes F. and Von Wachter, Till and Heining, Joerg, The Costs of Job Displacement Over the Business Cycle and its Sources: Evidence from Germany (June 2022). NBER Working Paper No. w30162, Available at SSRN: https://ssrn.com/abstract=4140880

Johannes F. Schmieder (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

IZA ( email )

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Joerg Heining

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

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