Maximilian Longmuir, City University of New York

Title: The Scarring Effects of Firm Shutdowns on Workers' Wages:  A Distributional Perspective

Abstract: We combine the wage determination framework of Bonhomme, Lamadon, and Manresa (2019) and an event-study framework to study the wage loss trajectories of heterogeneous workers after firm shutdowns. As our database, we use the universe of matched employer-employee data from 1975 to 2001 of Italy’s Veneto region, one of the leading Italian regional economies. Aggregate wage losses directly after a shutdown are 4.5% of the daily wage, which almost halves after six years. This average loss conceals substantial heterogeneity: high-wage, top-type workers face initial losses of 12.4%, which remain persistent even after six years. Conversely, initial losses for bottom-type workers are 2.6%, which become statistically insignificant after six years. We identify losses in firm tenure as the main source of wage reductions following the shutdown of a worker’s firm. From a methodological perspective, we show that the current workhorse model of wage determination due to Abowd, Kramarz, and Margolis (1999), does not capture this heterogeneity and produces misleading conclusions regarding the sources of wage losses. This is due to limited mobility bias.

Presenter: Maximilian Longmuir, City University of New York

If you would like to subscribe to the Melbourne Institute Seminar Series email list, please contact us.