Assistant Professor
Department of Economics
Columbia University
Email: vw2112@columbia.edu
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| Till Marco von Wachter
Assistant Professor
Email: vw2112@columbia.edu |
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In the Right Place at the Wrong Time - The Role of
Firms and Luck in Young Workers' Careers" (joint with Stefan Bender)
Abstract:
We exploit administrative data on young German workers and their employers to study the long-term effects of an early
job loss. To account for non-random sorting of workers into firms with different turnover rates and for selective job
mobility, we use changes over time in firm- and agespecific labor demand as an instrument for displacement. We find
that wage losses of young job losers are initially 15% but fade to zero within five years. Only workers leaving very
large establishments suffer persistent losses. A comparison of estimators implies that initial sorting, negative
selection, and voluntary job mobility may have biased previous U.S. studies finding permanent effects of early
displacements. (JEL J63, J65)
"Mortality, Mass-Layoffs, and Career Outcomes: An Analysis using Administrative Data"
(joint with Daniel Sullivan)
Abstract:
Short-term labor market shocks, such as job displacements, can have persistent effects on workers’
earnings, employment and job stability, consumption, and access to health insurance. A long
literature suggests these changes in workers’ socioeconomic conditions have potentially important
effects on health outcomes, but existing studies associating job loss to health status face several
problems of measurement and identification. This paper uses a large longitudinal administrative
data set of quarterly earnings and employer records matched to information on individual mortality
outcomes to estimate the long-term effect of a job loss during a mass layoff on mortality. We find
that a job loss leads to a 15-20% increase in the probability of dying in the 20 years following a job
loss. The initial and the long-run responses are particular pronounced. To examine the channels of
the mass layoff effect, we exploit the panel nature of our data – covering over 15 years of earnings –
to analyze the correlation of long-run career conditions, such as the average and the variance of
earnings, with mortality, something not possible with typical data sets. A lasting decrease in earnings
and a rise in earnings instability due to mass layoffs have the potential to explain a significant
fraction of the effect of a job loss on mortality.
"Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates"
(joint with Phil Oreopoulos and Andrew Heisz)
Abstract:
The standard neo-classical model of wage setting predicts short-term effects of temporary labor
market shocks on careers and low costs of recessions for both more and less advantaged workers. In
contrast, a vast range of alternative career models based on frictions in the labor market suggests that labor
market shocks can have persistent effects on the entire earnings profile. This paper analyzes the long-term
effects of graduating in a recession on earnings, job mobility, and employer characteristics for a large sample
of Canadian college graduates with different predicted earnings using matched university-employer-employee
data from 1982 to 1999, and uses its results to assess the importance of alternative career models. We find
that young graduates entering the labor market in a recession suffer significant initial earnings losses that
eventually fade, but after 8 to 10 years. We also document substantial heterogeneity in the costs of recessions
and important effects on job mobility and employer characteristics, but small effects on time worked. These
adjustment patterns are neither consistent with a neo-classical spot market nor a complete scarring effect, but
could be explained by a combination of time intensive search for better employers and long-term wage
contracting. All results are robust to an extensive sensitivity analysis including controls for correlated
business cycle shocks after labor market entry, endogenous timing of graduation, permanent cohort
differences, and selective labor force participation.
"The End of Mandatory Retirement in the US: Effects on Retirement and Implicit Contracts" (Center for Labor Economics Working Paper No. 49, University of California Berkeley, 2002)
Abstract: This
paper analyzes the economic effects of the end of mandatory retirement. It takes advantage of the unique variation in institutions
affecting retirement behavior to study the change in labor force participation, job attachment and wages of older workers from the
1970s to the 1990s. In the 1970s, about 40% of male employees in the US were covered by rules mandating retirement at age 65. Then,
in 1978 and 1986, mandatory retirement was abolished by stepwise amendments of the federal Age Discrimination in Employment Act.
These changes have not been previously studied, possibly due to a lack of appropriate data. To mimic the ideal experiment offered by
the change in legislation, I impute coverage of mandatory retirement to data from the monthly Current Population Survey and compare
labor force trends for workers with high- and low-probabilities of coverage before and after the change. The results indicate that
workers covered by mandatory retirement had a very high incidence of retirement at age 65, which declined significantly following
the elimination of mandatory retirement. Overall, the results suggest that the labor force of workers 65 and older rose by 10% to
20% with the end of mandatory retirement. Neither job tenure nor wage-profiles of older workers were affected by the change.
"Following Germany's Lead: Using International Monetary
Linkages to Identify the Effect of Monetary Policy on
the Economy" (joint with Julian di Giovanni and Justin McCrary)
Abstract:
Forward-looking behavior on the part of the monetary authority leads least squares
estimates to understate the true growth consequences of monetary policy interven-
tions. We present instrumental variables estimates of the impact of interest rates on
real output growth for several European countries, using German interest rates as the
instrument. We compare this identi¯cation strategy to the vector autoregression ap-
proach, and give an interpretation of our estimates that is appropriate in a dynamic
context. Moreover, we show that the di®erence between least squares and instrumental
variables estimates provides bounds for the degree of endogeneity in monetary policy.
The results con¯rm a considerable downward bias of estimates that do not account for
potential forward-looking monetary policy decisions. The bias is higher for countries
whose monetary policy was more independent of Germany.
"Estimating the 'True' Cost of Job Loss: Evidence Using Matched Data from California 1991-2000"
(joint with Andrew Hildreth and Elizabeth Weber)
Abstract:
The paper examines the cost of job loss from the worker perspective. There are broadly two approaches to estimating the cost of job loss for workers in the literature. One using the Displaced Worker Survey (DWS); the other using state administrative records (chiefly Unemployment Insurance base wage files). It is commonly found that these two types of data give drastically different answers regarding the size and persistence of earnings losses of displaced workers. This paper uses a unique match between the DWS and UI base wage file for California in the 1990s to reconcile different estimates of the cost of job loss and examine measurement problems in the survery and administrative data.We find that both data sets are plagued by serious measurement errors, but that the UI appears to over-state earnings losses by a too broad definition of job loss.
"Does a Four-Fold Higher Unemployment Rate Make a Difference? Wage Growth and Job Mobility
of Young Workers in France, Germany, and the United States" (joint with Paola Giuliano)
Abstract:
Since the early 1980s young French workers have entered the labor force facing
unemployment rates that are a multiple higher than Germany’s. At the same time, GDP
per capita has developed very similarly in the two countries. In addition, despite their low
initial labor force attachment, French workers do not appear to experience slower rates of
wage growth than young Germans. While in contradiction with the standard neo-classical
model of human capital accumulation, these patterns could be explained by a different
role of job search and matching in career development. Detailed evidence on the
incidence and benefits of job mobility and on the return to actual time worked support the
hypothesis that search matters more in France and the U.S. than in Germany, where onthe-
job learning appears crucial. However, job mobility in Germany is more prevalent
than implied by standard human capital models, indicating that search is an important
source of growth in all three countries. Overall, these results suggest that aggregate
statistics can mask important differences in the channels of wage growth and turnover,
and that similar aggregate growth rates may be supported with very different systems of
school-to-work transition.
"Zero Returns to Compulsory Schooling in
Germany: Evidence and Interpretation."
(joint with Jörn-Steven Pischke)
Abstract:
We estimate the impact of compulsory schooling on earnings using
the changes in compulsory schooling laws for secondary schools
in West German states during the period from 1948 to 1970.
While our research design is very similar to studies for various
other countries, we .nd very di¤erent estimates of the returns.
Most estimates in the literature indicate returns in the range of
10 to 15 percent. We .nd no return to compulsory schooling
in Germany in terms of higher wages. We investigate whether
this is due to labor market institutions or the existence of the
apprenticeship training system in Germany, but .nd no evidence
for these explanations. We conjecture that the result might be
due to the fact that the basic skills most relevant for the labor
market are learned earlier in Germany than in other countries.
“The Recent Increase in Social Security Disability Rolls and the Change in Economic Status of Applicants, New Entrants and Denied Workers:
An Analysis using Longitudinal Administrative Records,” (Joint with Jae Song and Joyce Manchester, Presented at APPAM 2006 Madison, WI)
Abstract:
Recent research suggests an increasing role of economic conditions in inducing less-advantaged workers to apply for and receive disability insurance (DI). Yet, little is known about the actual evolution of the economic status of workers in the DI system. To help isolate the role of economic fluctuations in inducing workers to apply for DI, we use longitudinal administrative data on individual earnings and details of disability applications to analyze the year-to-year fluctuations in long-term average earnings, its correlation with the business cycle, and how it differs among allowed and denied applicants. We find an increasingly strong inverse correlation between the number and the average long-term earnings of applicants to DI that appears to be driven to an important degree by a response of denied applicants to business cycle conditions. These preliminary findings suggest adverse economic conditions indeed have lead to an increase in application rates of workers with low permanent earnings, but that a substantial part are screened out to during the application process. These preliminary conclusions are robust to controls for substantial shifts in the distribution of age, earnings, replacement rates, and impairment types, and hold within narrow categories of applicants.
“Mass-Layoff, Disability Insurance, and Retirement Claims from 1980 to 2005: An Analysis with
Administrative Social Security Data,” (Joint with Jae Song and Joyce Manchester)
Abstract:
We use a new longitudinal administrative matched employer-employee data set based on
U.S. Social Security earnings data to examine the effect of mass-layoffs from 1980 to 2005.
In particular, we focus on the effect of mass-layoff on the take up of disability insurance
and retirement, exploiting the interaction between program rules and career shocks due to mass-layoff.
“Entry-Cohort Effects at the Firm Level: Testing for Permanent vs. Transitory Effects using Evidence from Job
Changers” (Joint with Stefan Bender, Presented at CAED 2006 Chicago and CAFE 2006 Nurnberg, Germany)
Abstract:
Influential studies have shown that external labor market conditions can have
persistent effects on wages within firms (e.g., Baker, Gibbs, and Holmstrom 1994). Such
lasting differences could signify important departures of firms’ wage setting from a
standard competitive framework (Beaudry and DiNardo 1991). On the other hand, they
could represent cohort-specific differences in training that workers receive (Gibbons and
Waldman 2004). To test whether firms’ wage setting is driven by internal labor markets
or contracts vs. workers’ marginal product, we analyze the persistence of firm cohort
effects using evidence from job losers – temporary rents should dissipate for involuntary
job changers, while differences in human capital due to training should remain even at
new employers. To do so, we have access to 25 years of longitudinal earnings and
employment information for the universe of employees that ever worked in a large
sample of German manufacturing establishments. Preliminary results show that workers
seem to keep firm entry-cohort premiums even after leaving the firm. However, we also
find that wages of high-wage cohorts grow slower within the firm and that exit rates of
workers from these cohorts are higher. Thus, it appears firms adjust to high initial cohort
wages partly by raising workers' productivity through cohort-specific training and partly
by compressing wages and firing expensive workers.
“Career Transitions and Firm Quality of Early Job Losers” (Joint with Katja Görlitz and Stefan Bender,
To be Presented at NUKO Conference, Nurnberg, Germany)
Abstract:
Although a large literature examines the effect of job loss on wages, few papers study the
impact of job loss on the entire career profile. Yet, different models of career development within
and between firms predict very different patterns of recovery from job displacements. We exploit a
large administrative data set on young German workers and their employers to study the short- and
long-term adjustment pattern to an early career job loss. The estimates of job loss on mobility, time
worked, and firm characteristics are used to distinguish between three basic models of career
determination – on-the-job human capital accumulation, job search, and job assignment. Thereby,
we account for non-random sorting of workers into firms with different turnover rates and for
selective job mobility, using changes over time in firm- and age-specific labor demand as an
instrument for displacement as in von Wachter and Bender (2005). The results suggest adjustment
occurs in an initial stage between firms, and in a second stage within firms. This is consistent with a
model of step-wise search for career jobs and recovery of lost firm specific capital or within-firm
career opportunities.
"Tenure and Experience in a Model of Employer Learning and Adverse Selection"
Abstract: If current employers are better informed about their
workers' productivity than potential new employers, the latter might
perceive displaced workers to be of lower quality. Yet, if better workers are assigned to more productive jobs, wages are at least partially a function of workers' productivity, and this
may mitigate the problem of asymmetric information. The present paper
derives the wage loss of displaced workers due to adverse selection in a
model where current employers gradually learn about workers' ability. As
workers age, this information is released to the market through
wages as workers get promoted according to their comparative advantage.
Thus, the model predicts that negative signals such as a displacement
reveal more about a workers' ability when they occur early in their career
rather than later. Large wage losses upon displacement of older workers
should thus be driven by losses in firm-specific skills or rents.
Moreover, in the case of adverse selection wages of displaced workers should
be determined by factors affecting the average quality of workers looking
for work. These factors should matter more for older than for younger workers.
"The Role of Service and Manufacturing Sectors in Cross Country Growth" (European Central Bank Working Paper No. 50, 2001)