Evidence on Adverse Selection and Establishment Size in the Labor Market
Posted: 21 Nov 2002 Last revised: 17 Oct 2011
Date Written: October 17, 2011
A commonly suggested explanation for the finding that laid-off workers have greater mean post-displacement earnings losses than workers who lose their jobs through plant closings is that the former are of lower quality than the latter. But there is also an alternative explanation for this result: laid-off workers suffer larger earnings losses because, as a group, they have more to lose in the first place, having been displaced from larger, higher-wage establishments. An analysis of data from the National Longitudinal Survey of Youth confirms this hypothesis. Accounting for establishment size removes virtually all of the difference in wage losses for the two groups of displaced workers.
Keywords: adverse selection, job loss, layoff, plant closing, labour economics
JEL Classification: J00, J63, J65, J30, J31
Suggested Citation: Suggested Citation