Till v. Wachter (University of California Berkeley), Stefan Bender

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

Do early job losses permanently reduce the earnings and career prospects of young workers? Simple estimates may overstate the true effects of early displacements, especially if less able workers sort into firms with high turnover rates. The bias from initial assignment of workers between firms is compounded by biases from selection within firms, which arise if employers selectively displace their least able workers, or if workers move voluntarily to take better jobs. This paper uses longitudinal social security data on German apprentices and their training firms to obtain estimates of the long-term effects of an early job loss that account for nonrandom assignment between firms and selection within firms. I use differences over time in the fraction of graduating apprentices that are retained by the training firm as an instrument for job displacement. These should reflect exogenous changes in firm-specific labor demand that are independent of individual ability or permanent firm characteristics. Using this strategy, I find that wage losses from leaving the training firm at graduation are initially strong but fade within the first five years in the labor market. The results also confirm an important influence of voluntary mobility and of initial sorting matching trainees to firms. Both of these factors are likely to confound results of previous studies of early job mobility lacking information on the demand side.

Keywords: job displacement, young workers, path dependence, sorting, job search

JEL Codes: J63, J64, J41 and J24

Session: 2d   Room 2003   Category: Job separation

Paper