Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322512 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11950
Publisher: 
CESifo GmbH, Munich
Abstract: 
It is well established that job displacement leads to large and persistent earnings losses, but the reasons for these long-term losses remain unclear. A leading theory ties earnings losses to the demand laid-off workers face for their industry-specific human capital, yet evidence in support of this theory is lacking. This paper proposes a novel method for estimating the demand for workers' industry-specific skills. I proxy for the worker's skill set with her occupation, and measure how industry-specific her occupation is by the share of the occupation that is employed in her industry. The demand for the worker's industry-specific skills is then estimated by the industry growth rate. Applying this measure, I test for heterogeneity in the costs of displacement for manufacturing workers in Israel. I show that workers laid off from shrinking industries who held highly industry-specific occupations suffer from substantially greater earnings losses, as predicted by the theory. Within shrinking industries, these workers experience earnings losses that are 76% higher than workers in occupations with low industry-specificity. These losses in earnings are driven by a persistent effect on employment, as workers with industry-specific occupations are 2.5 times more likely to exit the labor market in the years following displacement. The findings are robust to within-firm analysis, indicating that these results are not explained by a loss of firm wage premiums.
JEL: 
J24
J31
J63
J65
Document Type: 
Working Paper
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