Does Job Displacement Explain Wage Inequality: A Nonparametric Examination

Abstract

We examine the effect of job displacement on changes in the wage structure using nonparametric estimation methods. We argue that job displacement is a plausible mechanism that transmits causes such as skill-biased technological change or deindustrialization to changes in the wage structure. Employing a combination of data from the January and Outgoing Rotation Groups of the Current Population Survey, we compare the distribution of earnings prior to and after worker displacement. Although the conventional wisdom argues for a strong connection between worker displacement and changes in the wage structure, we find limited effects of displacement on the wage distribution.