In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers

Abstract

We examine administrative data on young German workers and their employers to study the long-term effects of an early career job loss. To account for nonrandom sorting of workers into firms with different turnover rates and for selective job mobility, we use changes over time in firm- and age-specific labor demand as an instrument for displacement. We find that wage losses of young job losers are initially 15 percent, but drop to zero within five years. Only workers leaving very large establishments suffer persistent losses. A comparison of estimators implies that initial sorting, negative selection, and voluntary job mobility biases ordinary least squares estimates toward finding permanent negative effects of early displacements. (JEL J13, J23, J24, J62, J63, M53)

Mobility across firms and occupations among graduates from apprenticeship

“…While a large literature emphasizes the loss of firm-specific or occupation-specific human capital (e.g. Kambourov and Manovskii, 2008;Gathmann and Schönberg, 2010;von Wachter and Bender, 2006;von Wachter et al 2009), mobility may very well be associated with career progression or job shopping in labor markets with frictions (Topel and Ward, 1992), thus resulting in wage gains after mobility (Groes et al, forthcoming;Fitzenberger and Spitz-Oener, 2004;Fitzenberger and Kunze 2005). Furthermore, mobility across firms and occupations may be an important adjustment mechanism in a dynamic labor market.…”

“…Given the combination of firm-based and school-based training the skills acquired during an apprenticeship are often thought to be largely transferable across jobs, thus allowing for worker mobility after graduation from apprenticeship (Euwals andWinkelmann, 2002, 2004;Clark and Fahr, 2002). Indeed, retention rates are only about 60-75% of all graduates (Bougheas and Georgellis, 2004;Euwals and Winkelmann, 2004;von Wachter and Bender, 2006). The high mobility after graduation is a particularly interesting case to analyze.…”

“…In 2009 about 60% of German youths aged between 16 and 24 years entered vocational training (Gericke et al, 2011). 1 and Ryan, 2011) and a change of occupation (firm) may imply a loss of the occupation-(firm-) specific human capital acquired through apprenticeship training (Kambourov and Manovskii, 2008;Gathmann and Schönberg, 2010). On the other hand, firms may use the apprenticeship as a screening device for young workers, and they may only retain those apprentices after graduation who perform well (Euwals and Winkelmann, 2002;Werwatz 2002;von Wachter and Bender, 2006). Graduates from apprenticeship may search for better job offers as a form of career progression (Topel and Ward, 1992;von Wachter and Bender, 2006;Fitzenberger and Spitz-Oener 2004), and non-training firms may make attractive job offers to well trained graduates from apprenticeship, i.e.…”

“…On the other hand, firms may use the apprenticeship as a screening device for young workers, and they may only retain those apprentices after graduation who perform well (Euwals and Winkelmann, 2002;Werwatz 2002;von Wachter and Bender, 2006). Graduates from apprenticeship may search for better job offers as a form of career progression (Topel and Ward, 1992;von Wachter and Bender, 2006;Fitzenberger and Spitz-Oener 2004), and non-training firms may make attractive job offers to well trained graduates from apprenticeship, i.e. there is an incentive for poaching (Wolter and Ryan, 2011).…”

“…However, the existing studies typically do not distinguish between a pure firm switch without occupation switch and a simultaneous switch of firm and occupation (a complex switch according to Neal, 1999), and occupational mobility within the training firm is typically ignored. Von Wachter and Bender (2006) estimate a large immediate negative causal wage effect of a switch of firm after graduation. However, the negative effect vanishes five years afterwards.…”