the decline of job loss and why it matters steven j. davis university of chicago, nber, aei aea...
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![Page 1: The Decline of Job Loss and Why It Matters Steven J. Davis University of Chicago, NBER, AEI AEA Session on “Labor Market Flows” New Orleans, 3 January](https://reader035.vdocument.in/reader035/viewer/2022062407/56649d445503460f94a21899/html5/thumbnails/1.jpg)
The Decline of Job Loss and Why It Matters
Steven J. DavisUniversity of Chicago, NBER, AEI
AEA Session on
“Labor Market Flows”
New Orleans, 3 January 2008
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Chief ClaimAmerican workers face lower risks of job loss in recent years than 10, 20 or 30 years earlier.
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Why the Decline of Job Loss Matters
1. Lower (frictional) unemployment
2. Reduced costs of worker displacement
3. A rising tide of economic insecurity?
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Weekly New Claims for Unemployment Insurance BenefitsRelative to Nonfarm Payroll Employment, Monthly Averages, 1967-2007
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Jan-67 Jan-72 Jan-77 Jan-82 Jan-87 Jan-92 Jan-97 Jan-02 Jan-07
Per
cent
of
Em
ploy
men
t
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3.0
4.0
5.0
6.0
7.0
8.0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002
Percent of Employment
HP Trend - Creation
HP Trend - Destruction
Quarterly Job Flows, Manufacturing Sector,1947-2005
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DWS Job-Loss Rate, Farber (2007)
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On Job Tenure Statistics
• Job tenure statistics inform us about the durability of employment relationships, not the risk of job loss.– According to JOLTS data for 2001-2006, 36%
of employment spells end because the worker is laid off or discharged for cause.
– Most jobs end because the worker quits.
• Historically, workers are more prone to quit when job opportunities are plentiful.– Should we interpret declines in job tenure as
evidence that workers enjoy a greater abundance of attractive job options?
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Unemployment, 1
• Basic mechanism in search models along the lines of Mortensen and Pissarides (1994):
Less job destruction
fewer job-losing workers
smaller unemployment inflows
lower unemployment rates
• Question: Does this mechanism explain the large drop in U.S. unemployment inflows and unemployment rates since the early 1980s?
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Job Destruction and Unemployment Inflows by Major Industry, 3-Year Averages, 1990-2005,
Controls for Period and Industry Effects
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Job Destruction and Unemployment Inflows by Major Industry, 3-Year Averages, 1977-2001,
Controls for Period and Industry Effects
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Unemployment, 2• Consider the estimated effect of job destruction
on unemployment inflows in the industry-level data (using low-frequency covariation)
• Multiply estimated effect by aggregate drop in job destruction rate from 1990 to 2005 Implied decline in unemployment inflow rate amounts to 48% of actual decline (20% of average value)
Conclusion: Basic MP mechanism accounts for nearly half the decline in unemployment inflow rates.
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Unemployment, 3
• In an accounting sense, lower unemployment rates since 1970s and early 1980s are largely/almost entirely explained by a secular decline in unemployment inflow rates.
• Job-finding rate fluctuates a lot with business cycle but has little trend.
• For evidence, see the time series charts in Fujita and Ramey (2006), Davis et al. (2007), Elsby et al. (2007) and Shimer (2007).
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Costly Worker Displacement, 1
• Much evidence that job loss can lead to harmful consequence for workers and their families.
• Jacobson, Lalonde and Sullivan (1993) and Sullivan and von Wachter (2007) consider high-seniority workers displaced from larger employers in mass-layoff events between 1980 and 1986 – Large and persistent earnings losses, e.g., 25%
below pre-displacement levels 5 years later– 15-20% increase in death rates over 20 years
life expectancy reduction of about 1.5 years
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Costly Worker Displacement, 2
Good-News Corollary:
American workers are much less likely to suffer from costly worker displacement events in recent years than in the 1970s and early 1980s.
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A Rising Tide of Economic Insecurity?
• The risk of job loss is usually seen as one of the major economic risks facing individuals.
• At a minimum, the long term decline in job loss rates calls for some revision to alarmist views about rising economic insecurity for American workers and families. – At least one major element of economic security
has improved in recent decades.
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Why the Mistaken Claims of Declining Job Security?
• Unwarranted interpretation of job tenure stats
• Globalization and competition have undercut job security for certain jobs and occupations.
• College degree is no longer a ticket to a secure job
• Rising volatility at publicly traded firms was seen as a broader rise in business volatility.– But volatility fell for privately held firms, and they
dominate the overall trend.
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Volatility of Firm-Level Employment Growth Rates (Davis et al, 2006)