We examine administrative data on young German workers and their employers to
study the long-term effects of an early career job loss. To account for nonrandom
sorting of workers into firms with different turnover rates and for selective job
mobility, we use changes over time in firm- and age-specific labor demand as an
instrument for displacement. We find that wage losses of young job losers are
initially 15 percent, but drop to zero within five years. Only workers leaving very
large establishments suffer persistent losses. A comparison of estimators implies
that initial sorting, negative selection, and voluntary job mobility biases ordinary
least squares estimates toward finding permanent negative effects of early displacements.
(JEL J13, J23, J24, J62, J63, M53)
von Wachter, Till, and Stefan Bender.
2006."In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers."American Economic Review,