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Demand for LaborThe Neglected Side of the Market$
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Daniel S. Hamermesh and Corrado Giulietti

Print publication date: 2017

Print ISBN-13: 9780198791379

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198791379.001.0001

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The Costs of Worker Displacement

The Costs of Worker Displacement

(p.197) 10 The Costs of Worker Displacement
Demand for Labor

Daniel S. Hamermesh

Oxford University Press

This study develops a mechanism for inferring the amount of losses caused by displacement. A game–theoretic model determining the amount of firm-specific investment in workers is developed. As workers’ and firms’ horizons decrease, such investment will be reduced, resulting in a flattening of the wage-tenure profile as the date of displacement approaches. Using the PSID data for workers displaced between 1977 and 1981, there is no significant flattening of the wage-tenure profile in the entire sample. (However, some flattening does occur among unionized workers, and also among workers who are laid-off permanently from a plant that remains open.) This suggests that workers are surprised by displacement. The present value of the worker’s share of the lost returns on this investment is around $7000 (1980 dollars) under intermediate assumptions about the real rate of discount, depreciation on such investment and the effect of tenure on the rate of voluntary separation.

Keywords:   Wage-tenure profiles, firm-specific human capital, costs of displacement, firmworker ties, layoffs, firesfisca

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