Abstract
Based on administrative data combining workers’ earnings histories and unemployment insurance benefits, we document short and long term wage losses for a large sample of Uruguayan formal workers with high tenure. The contribution of this paper is to provide original evidence about job separation costs in a developing country, based on a unique array of social security and unemployment insurance administrative micro-data. Our main findings indicate that workers lose around 38 % of their previous wages in the first quarter after separation, and 1 year after, losses are still more than 14 %. If we consider earnings plus unemployment insurance benefits, losses at the quarter of separation are considerable lower, amounting 22 % of previous wages. We also provide original evidence about how wage losses vary across age groups, gender, industry and size of the firm. Differences between switchers and non switchers, as well as the effects of the economic cycle are also analyzed.
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Notes
This study also finds that more than a third of displaced workers are not employed 2 years later, around 13 % of those who lost a full time job are subsequently holding part-time jobs.
The distribution of our sample by age and sex is very similar to that of formal workers in the household survey, reflecting the representativeness quality of our sample. Comparisons are available upon request.
The unemployment insurance program depends on the Ministry of Labor but is administered by the social security institution, Banco de Previsión Social.
An approach also based on comparison of treatment and control groups was previously used by Ruhm (1991). These estimations consisted of cross sectional regressions for post displacement earnings, and pre displacement earnings were included among the independent variables. The control group included workers displaced at other dates.
Robustness checks for this assumption are carried out.
We report standard errors for estimations at certain points in time in the tables. Standard errors for all estimations presented in the graphs are available upon request.
Young workers are those aged 25 and lower and middle aged include those aged 26 to 55. We did not include any age restriction for older workers (from 56 on).
Results are almost unchanged when switchers are defined at one or three digit ISIC classification.
This is a similar criteria as that used in JLS, although we considered firms with 20 or more workers, whereas in JLS the firm size threshold was 50 workers. This difference is explained by the scarcity of bigger firms in Uruguay. Even with this inferior threshold, the sample size is considerably reduced.
For these estimations, year dummy variables could not be included, and this explains the slower path of recovery of both groups when compared to the general results.
The threshold was set at 0.40, which corresponds to an equal proportion of mass layoffs in both groups, being that proportion 60.2 %.
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Appendix
Appendix
Earnings losses. All separations and (probit estimated) layoffs. Source: authors’ calculations using administrative records from Banco de Previsión Social
Earnings losses. All separations and workers with only one job. Source: authors’ calculations using administrative records from Banco de Previsión Social
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Amarante, V., Arim, R. & Dean, A. The Effects of Being Out of the Labor Market on Subsequent Wages: Evidence for Uruguay. J Labor Res 35, 39–62 (2014). https://doi.org/10.1007/s12122-013-9171-3
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DOI: https://doi.org/10.1007/s12122-013-9171-3