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Temporary overpessimism: Job loss expectations following a large negative employment shock

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  • Julian Emmler
  • Bernd Fitzenberger

Abstract

Job loss expectations were widespread amongst workers in East Germany following reunification with West Germany. Though experiencing a large negative employment shock, East German workers were nevertheless overpessimistic immediately after reunification with respect to their job loss risk. Over time, job loss expectations fell and converged to West German levels, which was driven by a stabilizing economic environment and by an adaptation of the interpretation of economic signals with workers learning to distinguish individual risk from firm‐level risk. In fact, conditional on actual job loss risk, East German workers quickly caught up to West Germans regarding the share of correctly predicted job losses.

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  • Julian Emmler & Bernd Fitzenberger, 2022. "Temporary overpessimism: Job loss expectations following a large negative employment shock," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(3), pages 621-661, July.
    • Handle: RePEc:wly:ectrin:v:30:y:2022:i:3:p:621-661
    DOI: 10.1111/ecot.12310
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    2. Almut Balleer & Georg Duernecker & Susanne Forstner & Johannes Goensch, 2023. "Biased Expectations and Labor Market Outcomes: Evidence from German Survey Data and Implications for the East-West Wage Gap," CESifo Working Paper Series 10336, CESifo.

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