An extensive literature in economics shows that workers experience large and persistent earnings losses following a job displacement. Given the millions of workers that were displaced during the COVID-19 recession and the high income inequality in the United States, it is important to understand the role that job displacements may play in driving inequalities across demographic and socioeconomic groups. In this paper, we use the Panel Study of Income Dynamics (PSID) to measure the frequency and earnings impact of job displacements by race, education, and parental income level. Focusing on displacements that occurred between 1989 and 2019, we find that Black workers are 67 percent more likely to be displaced than their white peers, on average. Workers without a bachelor’s degree are also 67 percent more likely to be displaced than those with a bachelor’s degree, and workers whose parents are in the bottom half of the income distribution are 27 percent more likely to be displaced than those with parents in the top half. Using an event study fixed effects model, we measure the impact of a given displacement on annual earnings by worker group. We find similarly large and persistent negative effects on earnings across all demographic and socioeconomic groups. Overall, we estimate a 57 percent decline in earnings for the year following a displacement and a 25 percent decline in the tenth year after a displacement.
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Kristin Butcher is Vice President and Director of Microeconomic Research at the Federal Reserve Bank of Chicago. The views expressed are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System, or its staff.
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