¶ Searching for job security and the consequences of job loss

pdf link alt (wiley)

¶ BibTeX

@article{jarosch2023searching,
  title={Searching for job security and the consequences of job loss},
  author={Jarosch, Gregor},
  journal={Econometrica},
  volume={91},
  number={3},
  pages={903--942},
  year={2023},
  publisher={Wiley Online Library}
}

¶ Abstract

Job loss comes with large present value earnings losses which elude workhorse models of unemployment and labor market policy. I propose a parsimonious model of a frictional labor market in which jobs differ in terms of unemployment risk and workers search off‐ and on‐the‐job. This gives rise to a job ladder with slippery bottom rungs where unemployment spells beget unemployment spells. I allow for human capital to respond to time spent out of work and estimate the framework on German Social Security data. The model captures the joint response of wages, employment, and unemployment risk to job loss which I measure empirically. The key driver of the “unemployment scar” is the loss in job security and its interaction with the evolution of human capital and, in particular, the search for better employment.

¶ Notes and Excerpts

scarring lifecycle slippery ladder

There are three key ingredients to the model. First, jobs differ in terms of unemployment risk. Second, employed workers search on-the-job for better positions. Jointly, this gives rise to a job ladder with slippery bottom rungs where workers on lower rungs are particularly exposed to unemployment risk. It follows that unemployment spells beget unemployment spells. Third, workers’ human capital may fall when out of work, in the spirit of Mincer and Ofek (1982).

In the model, jobs have e=different exogenous productivity and security.

I show that, as workers climb the job ladder, they move—under plausible restrictions on the job offer distribution—toward increasingly productive and secure jobs. This process gets reset whenever a worker experiences job loss.

There’s also a bit about externalities and job security (getting human capital at this job helps future employers who hire you).

Not the headline, but the social security data he is using also allows him to observe that there is heterogeneity on the employer’s side. Some firms persistently have higher churn.

. I also document that, through employment-to-employment transitions, workers move toward establishments that provide more job security. This evidence suggests that, indeed, an important aspect of the career ladder is the search for stable employment.

How would this evolution compare to one in which transitions are entirely random? There would be a tendency for people to “stick” to high security jobs, no?

Big long term wage scarring from job loss.

TODO: Come back and drill into the model more. Interesting framework.