In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers

We exploit administrative data on young German workers and their employers to study thelong-term effects of an early job loss. To account for non-random sorting of workers into firmswith different turnover rates and for selective job mobility, we use changes over time in firm-and age-specific labor demand as an instrument for displacement. We find that wage lossesof young job losers are initially 15% but fade to zero within five years. Only workers leavingvery large establishments suffer persistent losses. A comparison of estimators implies thatinitial sorting, negative selection, and voluntary job mobility may have biased previous U.S.studies finding permanent effects of early displacements.