The Costs of Involuntary Job Loss: Impacts on Workers’ Employment and Earnings

This paper was produced as a MBIE Research Paper for the Ministry of Business, Innovation and Employment

This paper examines the incidence of involuntary job loss and its impact on the employment and earnings of affected workers, using data from the Survey of Families, Incomes and Employment (SoFIE) for the 2002-09 period. It focusses on employees who had been working in their job for at least one year before the job loss.The impact of displacement on employment and earnings was estimated, using a propensity score-matching approach to select similar non-displaced workers and compare their outcomes. We find that the employment rate of displaced workers was on average 27 percentage points lower 0-1 years after displacement, 14 percentage points lower 1-2 years after, and 8 percentage points lower 2-3 years after, than that of the matched comparison group.The average wage of re-employed displaced workers was 12 percent lower 0-1 years after displacement, 11 percent lower 1-2 years after and 7 percent lower 2-3 years after. Other impacts included increases in unemployment and self-employment, reductions in average weekly hours, and reductions in weekly and annual earnings.