Displaced workers and the pandemic recession☆
Introduction
Between 2019 and 2021, 8.6 million workers experienced job displacement—an involuntarily loss of their jobs due to plant closure or insufficient work (US Bureau of Labor Statistics, 2022). In the past, displaced workers have typically experienced large earnings losses that can persist for up to 20 years (Jacobson et al., 1993, Schmieder et al., 2010). Furthermore, workers displaced during recessions have worse earnings outcomes, on average, than those displaced during expansions (Davis and von Wachter, 2011). Have workers who were displaced during the pandemic recession also experienced these adverse outcomes?
We find that workers displaced during the pandemic recession experienced almost no persistent earnings losses. This mild impact contrasts with earnings losses of about 20 (10) percent for workers displaced during previous recessions (expansions).1 We also find that workers displaced during the pandemic recession experienced better re-employment likelihoods than workers displaced during previous recessions.
A sharp recovery in aggregate labor market tightness after the pandemic recession accounts for the better outcomes of workers displaced during that period than for those displaced during previous recessions. This importance of labor market tightness for wage and employment determination is consistent with standard search theories and a large empirical literature.2 Our results also contribute to the literature about the persistent effects of recessions and the role of depressed labor demand, as discussed in Section 5.
Other pandemic-related factors—the industry and occupation composition of lost jobs, the prevalence of recalls, and the increased take-up of unemployment insurance (UI) benefits—do not explain our results. We consider the industry and occupation of lost jobs because job loss was more pronounced in the leisure and hospitality industry during the pandemic recession than in previous recessions (Forsythe et al., 2020) and these workers have historically had smaller mean earnings losses than workers displaced from other industries. We also consider job recalls because of the unusually high prevalence of temporary layoffs during the pandemic recession (Wolcott et al., 2020, Gertler et al., 2022, Hall and Kudlyak, 2020). Finally, we consider UI take-up, motivated by the increases in UI eligibility and benefits during the pandemic recession (Ganong et al., 2020, Petrosky-Nadeau and Valletta, 2021).
Section snippets
Dataset and sample construction
We use data from the Displaced Worker Survey (DWS) supplements to the Current Population Survey (CPS). The DWS includes individuals who recently lost or left their job involuntarily. The survey collects information about workers’ lost jobs. We also use data from the monthly CPS about post-displacement outcomes.
We use DWSs starting in 1990 and study individuals displaced no more than three years before the survey date.3
Empirical methodology
We compare the outcomes of workers displaced in 2020 to those of workers displaced during previous recessions using the following estimating equation: in which , , and denote individual, year, and recession, respectively, is an outcome variable, are indicators for job loss in the 1990–1991, 2001, 2008–2009, and 2020 recessions, is a vector of controls, is labor market tightness, and is the error term. includes worker characteristics such
Results
In this section we apply Eq. (1) to earnings, hours, and employment outcomes. We find that workers displaced in 2020 had better earnings and re-employment outcomes than workers displaced during previous recessions, although their hours outcomes were similar. Controlling for labor market tightness accounts for the differences.
Conclusions
Despite unprecedented disruptions to the labor market during the pandemic recession, workers displaced during that period experienced better (similar) earnings and employment (hours) outcomes than workers displaced during previous recessions. We find that the sharp recovery in aggregate labor tightness after the pandemic recession accounts for these differences. Industry and occupation composition of lost jobs, the prevalence of recalls, and increased take-up of UI benefits are unlikely
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Cited by (1)
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We thank Bruce Fallick for helpful comments. All errors are our own.
Meifeng Yang gratefully acknowledges funding from the National Science Foundation Graduate Research Fellowship (Grant No. DGE 1841052).
The views expressed are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of Cleveland, of the Federal Reserve System, or of the National Science Foundation.