Understanding the Scarring Effect of Recessions
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- 1 April 2022
- journal article
- research article
- Published by American Economic Association in American Economic Review
- Vol. 112 (4) , 1273-1310
Abstract
This paper documents that the earnings cost of job loss is concentrated among workers who find reemployment in lower-skill occupations, and that the cost and incidence of such occupation displacement is higher for workers who lose their job during a recession. I propose a model where hiring is endogenously more selective during recessions, leading some unemployed workers to optimally search for reemployment in lower-skill jobs. The model accounts for existing estimates of the size and cyclicality of the present value cost of job loss, and the cost of entering the labor market during a recession. (JEL E24, E32, J23, J24, J31, J63, J64)Keywords
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