Association for Public Policy Analysis & Management

We estimate the earnings losses of a cohort of workers displaced during the Great Recession and decompose those long-term losses into components attributable to fewer work hours and to reduced hourly wage rates. We also examine the extent to which the reduced earnings, work hours, and wage rates of these displaced workers can be attributed to factors specific to pre- and post-displacement employers; that is, to movement from employers who pay all types of workers relatively high wages and earnings to employers who pay all types of workers relatively low wages and earnings — that is, to lost employer-specific rents. The analysis is based on employer-employee linked panel data from Washington State assembled from 2002–2014 administrative wage and unemployment insurance records. We find that five years after displacement, the relative earnings deficit of displaced workers can be attributed roughly one-half to reduced hourly wages and one-half to reduced work hours. We also find that time-invariant characteristics of the employers who rehire displaced workers (that is, employer fixed effects) account nearly one-half of the lower long-term hourly wages of these workers.