Andrew K. G. Hildreth (UC Berkeley)

1. On the Importance of Measurement Error in Estimating Displacement and the Cost of Job Loss: Lessons using Matched Micro Employer-Employee Data. Andrew K. G. Hildreth (UC Berkeley) DTI/PSI Workshop, London, September 16h 2005

2. The Incidence and Cost of Job Loss? Obtain Correct Estimates Hardship of Displaced Workers Costs of Economic Adjustment Government Assistance Programs JTPA. WARN Modelling of Labour Market Adverse Selection, Wage Structure International Comparisons Problem of comparison: unknown if differences in definitions, data collected, or institutions. [Table 1 here].

3. The Incidence and Cost of Job Loss? Paper controls for a number of variations in estimating displacement and the cost of job loss. Use 2 main data sources in the US: Matched Data from the 2 Main Data Sources Displaced Worker Survey (DWS) Monthly Labor Review/BLS Unempl. Insurance Records (UI) Quarterly Workforce Indicators (QWI)/Census Matched data set from DWS & UI Importance of secure data centers (CCRDC).

4. Conflicting Estimates of Cost and Incidence Same Period and Region: California 1991-2000 Displaced Worker Survey (e.g., Farber 1993, 1997, 2003) Displacement Rate 8.4% 3 Year Wage Loss -7.3% UI Records (e.g., Jacobson, Lalonde, Sullivan 1993) Displacement Rate 16.2% 3 Year Wage Loss -13.8%  Difference typically found in literature

5. Which is Correct? DWS – Retrospective Survey Data Isolate involuntary job lossDifficult concepts (main job, …) Recall bias +Measurement error Demographic informationLimited job history UI – Longitudinal Administrative Data Information on employers Definition of job loss Detailed career history Improved wage data No demographic information

6. Approach here: Unique Match of DWS and UI Create a New Matched Data Set February CPS (DWS) + March CPS + UI Records Compare Estimates Based on SAME Workers Eliminate some sources of error (time, geography, groups) Focus on Questions of Definition and Measurement 1. Definition and misclassification of displacement 2. Correct costs of job loss for measurement error

7. Preliminary Results Incidence of Job Loss Most DWS job loss is found in UI (mis-reporting by age) For matched job loss, discrepancy in timing and type UI over-counts or DWS under-counts job loss Cost of Job Loss DWS wage measurement error (increasing with age) Effects of definition of job loss in UI M.E. correction suggests DWS under-states wage loss

8. Outline of Talk • Describe the two data files: • DWS • UI Base Wage File • Matched Data File • Creation of matched data • Incidence and cost of job loss in matched data • Measurement Error and the Cost of job loss.

9. Displaced Worker Survey (DWS) Bi-Annual Supplement to the Current Population Survey • Collected January (1984-92, 2002+) or February (1994-2000) • Collects information from workers lost their main job due to plant closing, slack work, or layoffs in past three years • Collects only information on current job and lost main job Known measurement and definition problems • Recall bias, telescoping (Topel 1991) • Definition of main job (longest high paying job) • Definition of employer (establishment vs. firm)

10. UI Base Wage File (UI-BW) Administrative Data Base • Contains SSN, SEIN and quarterly earnings since 1991 • Near universe of workers (no self-employed, federal, military) • Well-measured earnings (including bonuses and over time) Restrict and Recode 5% Random Sample • Restrict minimal firm-size to be 50 • Keep only highest paying job for multiple job holders • Smooth key-stroke errors in SSN (Abowd & Vilhuber 2004) • Fix coding errors of SEIN using worker flows

11. Define Job Loss in UI-BW Missing Information – Cause of Job Transitions Step 1: impose minimal job tenure require 6 (16) quarters tenure – job loss in 1993.1 (1995.2) Step 2: generate ‘mass-layoff’ sample Mass lay-off = firm size 30% below peak employment in initial period in year after job loss Alternatives - 60% drop below peak - require drop near displacement date Plant closing - SEIN disappears

12. Match DWS and UI-BW for CA Step 1: Merge February DWS to March CPS Match ¾ of rotation groups 1994 (probabilistic), 1996, 1998, 2000 (CPS identifiers) Step 2: Transfer SSNs in UI-BW to unique person identifiers used in CPS (PUIK) Step 3: Merge February/March CPS file to quarterly employment histories and mass-layoff information in 1991-2000 UI-BW Step 4: Create sub-samples – valid match on job loss and wages

13. Compare Matched Samples [Table 2 here]

14. Accuracy of Information from DWS Job Losers [Figure 1 and 2 here] [Table 3 here].

15. (Mis) Measurement of Job Loss UI-BW vs. DWS

16. Correlated Mis-Measurement of Job Loss

17. Estimating the Cost of Job Loss Difference-in-Difference Model Based on UI Wages Job Loss Indicator is Measured with Error  Measurement Error Correlated With Age Problem: Have No True Measure of Job Loss  Bound cost of job loss using two available measures

18. Mis-Classification Bias in Job Loss Dummy Step 1: Extend Model of Freeman (1984), Card (1996) to Mis- Classification Bias Correlated with Characteristics: Step 2: Use both DWS indicator and UI indicator as “true” measure of displacement respectively to obtain

19. Attenuation Coefficient of Mis-Classification Bias No Covariates, Random Error With Covariates, Correlated Error

20. Estimates of ‘True’ Cost of Job Loss [Table 5 here]

21. Summary Main Results DWS understates and UI-BW overstates job loss. Recall bias in the DWS correlated with age, previous tenure. Correlated measurement error in wages and job loss indicators. Preliminary correction reduces differences in cost of job loss. Plant-closing is a ‘better defined’ job loss event.

22. Figure 1: Extent of Measurement Error when a Worker was displaced from their Main Job • because of Plant Closing, Slack Work, or Position Abolished. • Figure 2: Extent of Measurement Error when a Worker was displaced from their Main Job • because of Plant Closing. • 0.000 • 0.050 • 0.100 • 0.150 • 0.200 • 0.250 • 0.300 • 0.350 • 0.400 • 0.450 • 0.500 • -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 • Years difference • Any displacement • Displacement/valid w. • 0.000 • 0.100 • 0.200 • 0.300 • 0.400 • 0.500 • 0.600 • 0.700 • -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 • Years difference • Any displacement • Displacement/valid w. • Table 1: Comparing Estimates of Displacement and the Cost of Job Loss Across Various Countries. • Country Data Type Time Displacement Definition Displacement Rate Cost of Job Loss • Britain Survey 1990-96 Job to job displaced 4.7 -0.054 • Exit and displaced -0.169 • France Administrative 1984-89 Plant closing 4.2 -0.048 • Germany Administrative 1984-90 Plant closes in 1 year 6.7 -0.209 • Plant closes in 2 years -0.216 • Plant contracts 40% in 2 years -0.232 • Belgium Administrative 1978-85 Plant contracts 30% in reference year 4.8 -0.090 • Denmark Administrative 1980-91 Plant contracts 30% in reference year 6.6 -0.168 • Netherlands Administrative 1993-96 Plant contracts 20% in reference year 4.8 -0.003 • Plant contracts 30% in reference year 3.8 • Plant contracts 40% in reference year 3.5 • Canada Administrative 1995 Permanent layoffs 6.1 -0.004 • Japan Survey 1995 Management Convenience & Contract Finished 2.7 -0.043 • USA Survey 1991-2000 Plant closed, slack work, position abolished 8.1 -0.102 • Administrative (CA) 1991-2000 Plant contracts 30% in reference year 20.2 -0.138 • Administrative (PA)* 1976-84 Plant contracts 30% in reference year 41.0 -0.352 • Notes • Estimates for Britain from Borland, Gregg, Knight, and Wadsworth (1999); estimates for France and Germany from Bender, Dustmann, Margolis, and Meghir (1999); • estimates for Belgium and Denmark from Albaek, Van Audenrode, and Browning (1999); estimates for Netherlands from Abbring, van den Berg, Gautier • van Lomwel, van Ours, and Ruhm (1999); estimates for Canada and Japan from Abe, Higuchi, Kuhn, Nakamura, and Sweetman, (1999); estimates for USA • Survey) from Hildreth, von Wachter, and Weber (2005); estimates for USA (Administrative (CA)) from Hildreth, von Wachter, and Weber (2005); estimates for • USA (Administrative (PA)) from Jacobson, Lalonde, and Sullivan (1993). • * Estimates of displacement for Administrative (PA) are probably inflated because of sample selection on the stayers as a comparison (or control) group. • Table 2: Descriptive Statistics for the Matched March CPS/February DWS - California UI-BW File. • Overall Sample Displaced Sample Displaced Sample Displaced Sample • DWS wage DWS wage/Plant Close • N 5068 603 492 196 • Age1 0.397 0.450 0.447 0.399 • [0.489] [0.498] [0.498] [0.491] • Age2 0.297 0.289 0.293 0.272 • [0.457] [0.439] [0.455] [0.446] • Age3 0.305 0.260 0.260 0.329 • [0.460] [0.439] [0.439] [0.471] • Education1 0.382 0.402 0.384 0.380 • [0.486] [0.491] [0.487] [0.487] • Education2 0.323 0.348 0.352 0.380 • [0.468] [0.477] [0.478] [0.487] • Education3 0.357 0.313 0.317 0.319 • [0.479] [0.464] [0.466] [0.467] • Female 0.497 0.440 0.431 0.507 • [0.500] [0.497] [0.496] [0.501] • Nonwhite 0.180 0.157 0.140 0.178 • [0.384] [0.364] [0.348] [0.384] • Union_t 0.057 0.058 0.080 0.090 • [0.075] [0.091] [0.139] [0.189] • Union_t-j 0.089 0.118 0.056 • [0.286] [0.323] [0.231] • Job tenure t-j 6.649 6.705 7.065 • [7.251] [7.261] [7.503] • Jobs held since 1.571 1.569 1.540 • [1.131] [1.103] [0.989] • Displaced 0.119 1.000 1.000 1.000 • Plant closure 0.375 0.398 1.000 • Slack work 0.402 0.375 • Position abolished 0.223 0.227 • Ln wage (dws)t 6.110 6.112 6.050 • [0.745] [0.766] [0.788] • Ln wage (dws)t-j 6.185 6.089 • [0.771] [0.737] • Ln wage (ui-bw)t 4.809 4.860 4.569 • [1.722] [1.851] [2.131] • Ln wage (ui-bw)t-j 5.037 4.678 • [1.370] [1.313] • CPS/DWS 1994 0.280 0.284 0.315 0.319 • CPS/DWS 1996 0.206 0.246 0.242 0.244 • CPS/DWS 1998 0.270 0.257 0.250 0.225 • CPS/DWS 2000 0.244 0.213 0.193 0.211 • Notes: • Standard deviations in parentheses. All wage measures in 1982-84 prices. • Variable definitions: • Age1=1 if an individual's age is equal to or greater than 20 and equal to or less than 35; 0 otherwise. • Age2=1 if an individual's age is equal to or greater than 36 and equal to or less than 45; 0 otherwise. • Age3=1 if an individual's age is equal to or greater than 46 and equal to or less than 64; 0 otherwise. • Education1=1 if an individual's education level was greater than or equal to 31 and equal to or less than 39; 0 otherwise. These are • individuals who did not graduate high school. • Education2=1 if an individual's education level was greater than or equal to 40 and equal to or less than 42; 0 otherwise. These are • individuals with an education where they graduated high school. • Education3=1 if an individual's education level was greater than or equal to 42; 0 otherwise. These are individuals who completed • an education above graduating from high school. • Female=1 if an individual was female; 0 otherwise (male). • Nonwhite=1 if an individual answer that they were not white in a question concerning racial origin; 0 otherwise. • Union_t=1 if an individual responded they were a union member in their current job; 0 otherwise. • Union_t-j=1 if an individual responded they were a union member on their previous job; 0 otherwise. • Job tenure_t-j is a continuous variable indicating the reported years of tenure on the previous job. • Jobs held since is a count variable on the number of jobs held by an individual between current and previous main job. • Displaced=1 if an individual responded in the DWS that they were displaced from their last main job; 0 otherwise. • Plant closure=1 if the individual reported in the DWS that they were displaced for the reason of plant closure; 0 otherwise. • Slack work=1 if the individual reported in the DWS that they were displaced for the reason of slack work; 0 otherwise. • Position abolished=1 if the individual reported in the DWS that they were displaced for the reason of position abolished; 0 otherwise. • Ln wage (dws)t is the natural log of the weekly wage measure from the Febuary CPS for the current job. • Ln wage (dws)t-j is the natural log of the weekly wage measure from the Febuary DWS for the previous main job. • Ln wage (ui-bw)t is the natural log of the weekly wage measure from the UI-BW file for the current job. • Ln wage (ui-bw)t-j is the natural log of the weekly wage measure from the UI-BW file for the previous main job. • CPS/DWS 1994=1 if the observations were from the 1994 DWS matched file. • CPS/DWS 1996=1 if the observations were from the 1996 DWS matched file. • CPS/DWS 1998=1 if the observations were from the 1998 DWS matched file. • CPS/DWS 2000=1 if the observations were from the 2000 DWS matched file. • Table 3: Displacement in the DWS and UI-BW files. • All Displaced • UI-BW • 0 1 • DWS 0 0.602 0.202 • 1 0.021 0.174 • Plant Closing • UI-BW • 0 1 • DWS 0 0.753 0.155 • 1 0.016 0.077 • Table 4: Measurement Error in Displacement for DWS - UI-BW Matched File Individuals. • UI-BW/DWS Displacement* Displacement Rate Conditional Probability Conditional Probability • UI_BW=0 UI-BW=0 UI-BW=1 UI-BW=1 UI-BW Coverage = 1 DWS Coverage = 1 • DWS=0 DWS=1 DWS=0 DWS=1 UI-BW DWS DWS=1 DWS=0 UI-BW=1 UI-BW=0 • Overall 25.96 0.91 8.73 7.52 0.162 0.084 0.463 0.537 0.892 0.108 • Plant Closing 25.96 0.54 5.34 2.64 0.081 0.036 0.325 0.657 0.728 0.148 • Age 1 5.85 0.27 4.77 3.36 0.081 0.036 0.413 0.587 0.926 0.074 • Age 2 8.16 0.24 2.27 2.25 0.045 0.025 0.498 0.502 0.904 0.096 • Age 3 11.95 0.40 1.69 1.91 0.036 0.023 0.531 0.469 0.826 0.174 • Education 1 9.40 0.34 3.33 2.92 0.063 0.033 0.468 0.532 0.895 0.105 • Education 2 8.04 0.31 3.25 2.66 0.059 0.030 0.449 0.551 0.894 0.106 • Education 3 10.27 0.31 2.69 2.42 0.051 0.027 0.474 0.526 0.885 0.115 • Female 12.82 0.40 4.19 3.18 0.074 0.036 0.431 0.569 0.888 0.113 • Male 13.15 0.51 4.52 4.34 0.089 0.048 0.490 0.510 0.895 0.105 • White 20.16 0.78 6.94 6.49 0.134 0.073 0.483 0.517 0.893 0.107 • Nonwhite 4.31 0.33 1.82 1.69 0.035 0.020 0.481 0.519 0.837 0.163 • Notes • * Note that this is an deflated displacement rate figure. The numbers do not sum to 100 as there is a large number of • individuals who change employer (change in SEIN), but are not displaced according to the JLS definition. • Table 5: Estimates of the Cost of Job Loss, Attenuation Bias, and the 'True' Cost of Job Loss • All Displaced • Assume that the DWS measure for displaced is 'true'. • ψλ ψ0 ψ λχ λ N • No Covariates -0.265 1.010 -0.263 2390 • [0.081] • Covariates (no correlation with x) -0.218 1.008 1.007 -0.216 2390 • [0.050] • Covariates (correlation with x) -0.218 1.008 1.348 -0.162 2390 • [0.050] • Assume that the UI-BW measure for displaced is 'true' • ψλ ψ0 ψ λχ λ N • No Covariates -0.065 0.245 -0.265 2390 • [0.024] • Covariates (no correlation with x) -0.076 0.232 0.471 -0.161 2390 • [0.021] • Covariates (correlation with x) -0.076 0.232 0.642 -0.118 2390 • [0.021] • Plant Closing • Assume that the DWS measure for displaced is 'true'. • ψλ ψ0 ψ λχ λ N • No Covariates -0.241 1.012 -0.238 2311 • [0.110] • Covariates (no correlation with x) -0.161 1.012 1.574 -0.102 2311 • [0.102] • Covariates (correlation with x) -0.161 1.012 6.825 -0.024 2311 • [0.102] • Assume that the UI-BW measure for displaced is 'true' • ψλ ψ0 ψ λχ λ N • No Covariates -0.039 0.347 -0.112 2311 • [0.007] • Covariates (no correlation with x) -0.038 0.347 1.114 -0.034 2311 • [0.008] • Covariates (correlation with x) -0.038 0.347 1.524 -0.025 2311 • [0.008] • Notes • Column headings correspond to the definitions in the text. The number of observations corresponds to all individuals • who were in the February DWS and either recorded no job displacement (DWS=0, UI-BW=0) or a displacement in either • file (DWS=1) or (UI-BW=1). • All wage equations, and linear probability models had the same type and control variables as found in the results • on Table 3. • Dependent variable for all wage regressions was the difference in the log wage from the UI-BW file.