The Effect of Labor Market Shocks across the Life Cycle

Abstract

Adverse economic shocks occur frequently and may cause individuals to reevaluate key life decisions in ways that have lasting consequences for themselves and the broader economy. These life decisions are fundamentally tied to specific periods of an individual's career, and economic shocks may therefore have substantially different impacts on individuals -and the broader economy -depending on when they occur. We exploit mass layoffs and establishment closures to examine the impact of adverse shocks across the life cycle on labor market outcomes and major life decisions: human capital investment, mobility, family structure, and retirement. Our results reveal substantial heterogeneity on labor market effects and life decisions in response to economic shocks across the life cycle. Individuals at the beginning of their careers invest in human capital and relocate to new local labor markets, individuals in the middle of their careers reduce fertility and adjust family formation decisions, and individuals at the end of their careers permanently exit the workforce and retire. As a consequence of the differential interactions between economic shocks and life decisions, the very long-term career implications of labor shocks vary considerably depending on when the shock occurs. We also document important heterogeneity across genders and education levels, both with respect to the immediate impact as well as the sum total of all these effects in the very long-term. We conclude that effects of adverse labor shocks are both more varied and more extensive than has previously been recognized, and that focusing on average effects among workers across the life cycle misses a great deal. JEL CODES: I20, J63

Household responses to trade shocks

“…We also highlight the importance of gender differences in added worker effects, and in particular the responses of men to shocks affecting their female partners. In the same vein, our findings relate to recent papers investigating gender differences in responses to labour market shocks from mass-layoff events (Salvanes et al, 2024;Illing et al, 2024). This paper also complements an empirical research agenda on the impacts of trade shocks on non-labour outcomes such as family formation and dissolution.…”

When it Hurts the Most: Timing of Parental Job Loss and a Child's Education

“…Job loss is an impactful event, leading to persistent earnings losses and unemployment. 4 We document moderate but persistent e ects of plant closure on labor market outcomes in Denmark, found by Bertheau et al (2022) to be relatively mild with respect to other countries, and show substantial heterogeneity by gender, family income, and life cycle stage (Salvanes et al, 2021). Our results on displaced workers' children imply that moderate shocks are su cient to produce negative intergenerational consequences if they hit in early childhood.…”

Expansions in Paid Parental Leave and Mothers’ Economic Progress1

“…Notice, however, that our application does not lack cross-sectional variation (as we have the universe of women having a child around the cutoff date) and does not ignore the time-series properties of the data (as we analyze both short-and long-run effects). 21 For fathers, instead, the take-up rate is lower at the start, about 40% in 1993, but growing considerably over time to about 85% in 1998, and essentially universal after that year. Furthermore, as the difference in compliance rates between treatment and control groups on each side of the cutoff t is never large, scaling up the ITT estimates does not have much scope.…”

“…This is why we focus on the ITT estimates for the rest of the paper. 21 Estimating (1) for every post-reform year separately allows us to trace out the life cycle pattern of the ITT effects from a minimum of eight years (after the 2005 reform) to a maximum of 26 years (after the 1987 reform) in the case of the probability of being in the top decile of the within-firm pay distribution. When our measure of gender diversity at the top is the likelihood of being in the C-suite of the organization, we will have estimates for 11 separate years (from 2003 to 2013) for all interventions, except for the 2005 reform for which we have again eight annual estimates from the year after the reform to the end of the sample period.…”