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The Effect of Labor Market Shocks Across the Life Cycle

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  • Salvanes, Kjell G.

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Willage, Barton

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Willén, Alexander

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

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.

Suggested Citation

  • Salvanes, Kjell G. & Willage, Barton & Willén, Alexander, 2021. "The Effect of Labor Market Shocks Across the Life Cycle," Discussion Paper Series in Economics 21/2021, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2021_021
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    3. Ria Ivandic & Anne Sophie Lassen, 2023. "Gender Gaps From Labor Market Shocks," Upjohn Working Papers 23-387, W.E. Upjohn Institute for Employment Research.
    4. Bingley, Paul & Cappellari, Lorenzo & Ovidi, Marco, 2023. "When It Hurts the Most: Timing of Parental Job Loss and a Child's Education," IZA Discussion Papers 16367, Institute of Labor Economics (IZA).
    5. Samuel Dodini & Kjell G. Salvanes & Alexander Willén & Li Zhu & Alexander L.P. Willén, 2023. "The Career Effects of Union Membership," CESifo Working Paper Series 10469, CESifo.
    6. Carneiro, Pedro & Salvanes, Kjell G. & Willage, Barton & Willén, Alexander, 2022. "The Timing of Parental Job Displacement, Child Development and Family Adjustment," IZA Discussion Papers 15630, Institute of Labor Economics (IZA).
    7. Kim, Seonghoon & Wang, Lanjie, 2024. "Navigating Unemployment without Unemployment Insurance: Evidence from Singapore," IZA Discussion Papers 17299, Institute of Labor Economics (IZA).
    8. Ivandić, Ria & Lassen, Anne Sophie, 2023. "Gender gaps from labor market shocks," Labour Economics, Elsevier, vol. 83(C).
    9. David, Sandberg, 2024. "The Effect of Military Base Closures on Young Adults," Working Papers 2024:9, Lund University, Department of Economics.

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    More about this item

    Keywords

    Labor Supply; Human Capital; Education; Fertility; Family Formation; Mobility; Retirement; Disability; Economic Shocks; Job Displacement;
    All these keywords.

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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