Job Ladders and Earnings of Displaced Workers

Workers who suffer job displacement experience surprisingly large and persistent earnings losses.This paper proposes an explanation for this robust empirical puzzle in a model of search over match-quality with a significant job ladder. In addition to capturing the depth and persistence of displaced worker earnings losses, the model is able to match a) separation rates by tenure; b) the empirical decomposition of earnings losses into reduced wages and employment; c) observed wage dispersion; d) the pattern of employer-to-employer transitions after layoff; and e) the degree of serial correlation in separations