Job Displacement and Earnings Losses: The Role of Joblessness

A large literature finds that workers displaced in mass layoffs experience persistent earnings losses. We find that the earnings penalty from job displacement is mediated by the length of the jobless spell after displacement. Workers who experience little or no joblessness suffer no losses on average; those who experience a prolonged period of joblessness experience large, persistent earnings losses. Job movers who experience joblessness tend to move to lower-paying firms, a phenomenon that informs our understanding of the mechanisms that generate earnings losses. We also find that jobless duration predicts earnings outcomes for separators generally, not only displaced workers. (JEL E24, J24, J31, J62, J63, J64)