Catching up after a job loss: The literature

What does the literature say about earnings losses after a job loss:

Generally, the evidence supports the conclusion that, on average, the earnings loss for an individual who losses a job will diminish slightly in time but the losses will last longer than 5 years.

(from listserv)

Most studies of displaced workers have found losses of roughly 5 to 25 percent (or, conversely, replacement rates of 75 to 95 percent).

At the lowend of the range of findings, David Shapiro and Steven Sandell ( The ReducedPay of Older Job Losers in The Problem Isn t Age: Workers and OlderAmericans, Praeger, 1983) found wage losses of about 4 percent.

At the high end of the range offindings, Louis Jacobsen, Robert LaLonde, and Daniel Sullivan ( EarningsLosses of Displaced Workers , AER, 1993) found earnings losses averaging about 25 percent.

Studies by Christopher Ruhm ( Are Workers Permanently Scarred by JobDisplacement? , AER, 1991) and Ann Huff Stevens ( Long Term Effects of JobDisplacement: Evidence from the Panel Study of Income Dynamics , NBERWorking Paper 5343, 1995) found earnings losses in the neighborhood of 15 percent.

Using PSID data, Stevens found that earnings lossesaveraged 6 to 12 percent seven plus years after displacement compared to about 15 percent one year after displacement.

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Do Terminated Employees Catch Up? Evidence from the Displaced Workers Survey, David Macpherson and Michael Piette, Journal of Forensic Economics 16 (2), 2003, pp. 185-199. found that wage losses ranging from 10% to 40%.

- In addition, the authors found that more tenured persons and older persons tended to have larger wage losses