The Firm’s Role in Displaced Workers’ Earnings Losses

The authors investigate the role of firm pay premiums in explaining the large, persistent earnings losses of displaced workers. They first estimate that long-run earnings for displaced workers from 2002 to 2008 in Ohio are depressed by 22%. Drawing upon empirical approaches from the displaced worker and firm heterogeneity literature, the authors then estimate that one-quarter of this earnings loss can be explained by the forfeiture of a favorable employer-specific pay premium. Such firm rents are more salient for those laid off from manufacturing firms, explaining half of their lost earnings. Nevertheless, this study adds to early evidence that firm rents do not explain the majority of earnings losses sustained by displaced workers in the United States.