Association for Public Policy Analysis & Management

This paper makes use of detailed micro-level longitudinal data from four countries, including Britain, Germany, Korea and Switzerland, to construct an index of worker’s unobservable ability by estimating the hedonic wage equation. Then the wage residuals and individual fixed effects are used as the right-hand side regressor to estimate the probability of involuntary job loss.

During the period from 2000 to 2009, the unemployment rate in the entire EU area varies as high as 9.7% to as low as 6.8%. Many of the workers lost their jobs involuntarily, as the separations caused by mass layoff or plant closure due to the declining economic performance. In the United States roughly 5 percent of workers lose a job due to job displacement in a typical year, while this number can be more than 15 percent during the great recession. Previous literature has looked at many sources of initiating a job loss including human capital, demographic characteristics and employer characteristics. This study will construct an index of worker's productivity and use that index to predict the probability of job loss.

By using the harmonized data from Cross-Nation Equivalent File, combining with four detailed longitudinal survey data, I find that in these four countries, lower ability workers are unexceptionally more likely to experience involuntary job loss, especially with the time invariant individual fixed effect. Unionization at the work place and firm size also play important roles in this mechanism. In Britain, Korea and Switzerland the union sector contributes almost all the effect while in Korea and Switzerland the impact from small firm size offsets the effect completely.