Wage Losses for Displaced Workers: Is It Really the Firm That Matters?

Abstract

Many studies have shown that displaced workers experience substantial wage reductions that are strongly related to their predisplacement job tenure and experience. This paper is an assessment of whether firm closures or downturns in more broadly defined labor markets drive the extreme wage losses of high tenure, high experience displaced workers. I show that the relatively high wage losses of high experience displaced workers are primarily due to their heightened sensitivity to downturns in their state, industry, and occupation. However, the large wage losses of high tenure displaced workers are not explained by their sensitivity to these local downturns. One interpretation of these facts is that firm specialization is linked primarily to firm-specific experience, but not to general labor market experience.

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