Essays on the Consequences of Economic Shocks on Labor Market Outcomes

Economic shocks are complex phenomena that have long been the focus of economists seeking to understand their causes and consequences. This dissertation provides evidence on the consequences of economic shocks on labor market outcomes, with a particular focus on the role of job displacement. Chapter 1 (joint with Christian Merkl) examines the role of ex ante worker heterogeneity for labor market dynamics and the composition of the unemployment pool over the business cycle. In recessions, the unemployment pool shifts toward workers with higher wages in their previous jobs. Based on administrative data for Germany and two-way worker and firm wage fixed effects, we show that this shift is mainly connected to worker heterogeneity, not to firm heterogeneity. We calibrate a search and matching model with ex ante worker heterogeneity to the estimated relative residual wage dispersion across worker fixed-effect groups. We show that a lower idiosyncratic match-specific shock dispersion for high-wage workers is key for the larger relative fluctuations of their separation rate as well as for the positive comovement between prior wages and fixed effects of unemployed workers with aggregate unemployment. We argue that firm-based explanations, such as cyclical financial frictions, are unlikely to be key drivers for the documented empirical patterns. Chapter 2 (joint with Robert Grundke and Ze’ev Krill) studies the cost of job displacement in carbon-intensive sectors. Using German administrative data, we estimate the cost of involuntary job displacement for workers in high- and low-carbon-intensity sectors. We find that displaced workers from high carbon-intensity sectors have, on average, higher earnings losses after job displacement, which, according to our results, is mainly due to human capital specificity, the regional clustering of carbon-intensive activities and higher wage premia in carbon-intensive firms. Workers displaced in high carbon-intensity sectors have fewer outside options for finding jobs with similar skill requirements, face higher local labor market concentration and have a higher probability to switch occupations, sectors, and local labor markets after displacement. Chapter 3 (single-authored) studies regional disparities in the cost of job loss between West and East Germany. Based on German administrative data, I document that, relative to their pre-displacement level, earnings losses of displaced workers are on average lower in East Germany than in West Germany. A shift–share decomposition shows that roughly one-third of this West–East gap is due to differences in the industry mix of job destruction: after the early de-industrialization of the East, job losses there were less concentrated in manufacturing and more in construction than in the West. The remaining two-thirds reflects smaller earnings losses in the East within industries, which are linked to lower firm wage premia among East German employers. Structural effects - the earnings losses associated with the same job lost across different regions - allow identifying an earnings penalty for displaced workers in the East that is more in line with its weaker labor market performance. Although regional mobility to the West offsets earnings losses among movers, the vast majority of East Germans do not relocate to the West after job loss.