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Why Do Earnings Fall with Job Displacement?
William J. Carrington (au); Bruce C. Fallick (au)
The earnings of workers are reduced for many years after being displaced from their jobs, and those workers and their families face increased risk of other problems as well. The ills suffered by displaced workers motivated several recent expansions of government programs, including the unemployment insurance system, and have spurred calls for wage insurance that would provide longer-run earnings replacement. However, while the magnitude of the losses is relatively clear, the theory of why displacement matters is scattered and somewhat undeveloped. Much of the policy discussion appears to interpret displacement-induced losses through the lens of specific human capital theory, and there is considerable empirical support for that model. But there are several other theories of why job displacement is costly. This study reviews theories of costly job displacement and discusses their consistency with the available empirical evidence. Figure. This is a print on demand report.
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