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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 2008 Steve.Davis@ChicagoGSB.edu. Chief Claim.
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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 2008 Steve.Davis@ChicagoGSB.edu
Chief Claim American workers face lower risks of job loss in recent years than 10, 20 or 30 years earlier.
Why the Decline of Job Loss Matters • Lower (frictional) unemployment • Reduced costs of worker displacement • A rising tide of economic insecurity?
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?
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?
Job Destruction and Unemployment Inflows by Major Industry, 3-Year Averages, 1990-2005, Controls for Period and Industry Effects
Job Destruction and Unemployment Inflows by Major Industry, 3-Year Averages, 1977-2001, Controls for Period and Industry Effects
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.
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).
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
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.
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.
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.
Volatility of Firm-Level Employment Growth Rates (Davis et al, 2006)