American Economic Review Vol. 112 No. 4 2022
Understanding the Scarring Effect of Recessions
Abstract
This paper documents that the earnings cost of job loss is concentrated among workers who find reemployment in lower-skill occupations, and that the cost and incidence of such occupation displacement is higher for workers who lose their job during a recession. I propose a model where hiring is endogenously more selective during recessions, leading some unemployed workers to optimally search for reemployment in lower-skill jobs. The model accounts for existing estimates of the size and cyclicality of the present value cost of job loss, and the cost of entering the labor market during a recession.
- DOI
- 10.1257/aer.20160449
- Volume
- 112
- Issue
- 4
- Pages
- 1273-1310
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref