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Decomposing the Wage Losses of Displaced Workers: The Role of the Reallocation of Workers into Firms and Job Titles

Author

Listed:
  • Raposo, Pedro

    (Universidade Catolica Portuguesa, Lisbon)

  • Portugal, Pedro

    (Banco de Portugal)

  • Carneiro, Anabela

    (University of Porto)

Abstract
Using an unusually rich matched employer-employee-job title data set for Portugal, this paper evaluates the sources of wage losses of workers displaced due to firm closure based on the comparison of workers' wages differentials before and after displacement. Potential wage losses of displaced workers can be related to firm, job title, and match heterogeneity in the pre- and post-displacement jobs. In this vein, we estimate a three-way high-dimensional fixed effects regression model that enables us to decompose the sources of the wage losses into the contribution of firm, job title, and match fixed effects. The worker-firm match plays a very sizable role. We found that the allocation of workers into poorer matches accounts for 38 percent of the total average wage loss. Sorting among firms accounts for 36 percent. Job downgrading also plays a significant role in explaining the wage loss of displaced workers, accounting for the remaining 26 percent.

Suggested Citation

  • Raposo, Pedro & Portugal, Pedro & Carneiro, Anabela, 2015. "Decomposing the Wage Losses of Displaced Workers: The Role of the Reallocation of Workers into Firms and Job Titles," IZA Discussion Papers 9220, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9220
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    References listed on IDEAS

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    1. Addison, John T & Portugal, Pedro, 1987. "On the Distributional Shape of Unemployment Duration," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 521-526, August.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    3. Addison, John T & Portugal, Pedro, 1992. "The Distributional Shape of Unemployment Duration: A Reply," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 717-721, November.
    4. A. R. Cardoso, 2000. "Wage differentials across firms: an application of multilevel modelling," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(4), pages 343-354.
    5. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(3), pages 437-459.
    6. Katharine G. Abraham & Henry S. Farber, 1988. "Returns to Seniority in Union and Nonunion Jobs: A New Look at the Evidence," ILR Review, Cornell University, ILR School, vol. 42(1), pages 3-19, October.
    7. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    8. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 77-108.
    9. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    10. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    11. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
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    14. Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2014. "Catastrophic job Destruction during the Portuguese Economic Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 444-457.
    15. Kenneth A. Couch & Dana W. Placzek, 2010. "Earnings Losses of Displaced Workers Revisited," American Economic Review, American Economic Association, vol. 100(1), pages 572-589, March.
    16. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January.
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    1. Decomposing the wage losses of displaced workers: the role of the reallocation of workers into firms and job titles
      by maximorossi in NEP-LTV blog on 2015-11-06 23:02:42

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    Cited by:

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    2. Marta C. Lopes, 2016. "Using the variation in potential duration of unemployment benefits to estimate the causal effect of unemployment duration on re-employment wages," Nova SBE Working Paper Series wp608, Universidade Nova de Lisboa, Nova School of Business and Economics.
    3. Wiljan van den Berge, 2019. "Automatic Reaction – What Happens to Workers at Firms that Automate?," CPB Discussion Paper 390.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Maryna Tverdostup & Tiiu Paas, 2019. "Valuation Of Human Capital And The Gender Wage Gap In Europe," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 118, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    5. Wiljan van den Berge, 2019. "Automatic Reaction – What Happens to Workers at Firms that Automate?," CPB Discussion Paper 390, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    match effects; job title; high-dimensional fixed effects; displaced; wage losses;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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