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Wealth After Job Displacement

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  • Barnette, Justin

Abstract

Income drops permanently after an involuntary job displacement, but it has never been clear what happens to long-run wealth in the United States. This paper concludes that involuntary job displacement has large effects on wealth throughout a worker's lifetime. Upon displacement, wealth falls 14% relative to workers of a similar age and education from the PSID. Their wealth is still 18% lower 12 years after the event. A standard life cycle model calibrated to US data with permanent decreases in income after displacement behaves differently than these findings. The agents in the model also experience a large drop in wealth but they recover. The biggest culprit for these differences is the changes to consumption being small and statistically insignificant in the PSID whereas agents in the model decrease their consumption considerably.

Suggested Citation

  • Barnette, Justin, 2020. "Wealth After Job Displacement," MPRA Paper 103642, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103642
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    References listed on IDEAS

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    Cited by:

    1. Barnette, Justin, 2020. "Replacement Rates and Long-Term Outcomes after Job Displacement," MPRA Paper 103644, University Library of Munich, Germany.

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    More about this item

    Keywords

    Job Loss; Unemployment; Wealth; Consumption; Debt;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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