Job Loss and Job Prospects: Estimating the Impact of Displacement on Job Security (job market paper)

Existing research on the cost of job loss has typically overlooked the role of job sorting after displacement in the perpetuation of recursive unemployment. This study aims to estimate the decline in job security associated with the type of jobs matched by displaced employees following their dismissals. Using a dataset containing the employment histories of about four million individuals working in Italy that allows for disentangling voluntary from involuntary job moves, I construct two indicators of job security attached to each specific type of job: one that captures the risk of dismissal and the other that conveys a measure of expected tenure. Then, employing an identification strategy that exploits collective dismissals as exogenous variations and a difference-in-differences methodology that uses not-yet-treated units as a control group, I estimate the impact of job loss on the expected job security of subsequent job types. I find that displacement generates an increased risk of dismissal intrinsic to the post-displacement type of jobs of about 2.38 percentage points and a lower expected tenure of around 156 days. This is equal to approximately a 13% decline in job security compared to pre-displacement averages.