The U-Shaped Cost of Job Loss

Job displacement causes large and lasting earnings losses. Challenging the common view that these losses increase monotonically with age, we document a clear U-shaped pattern in French administrative data: both young and older workers lose significantly more than those in mid-career. We identify distinct age-specific mechanisms behind this pattern. Young workers face prolonged job instability, whereas older workers encounter poor reemployment prospects and wage declines. We develop a search-and-matching model with human capital accumulation and obsolescence that reproduces these dynamics. For the young, displacement disrupts skill growth and traps them in high-turnover jobs; for the old, losses reflect an inability to redeploy human capital and firms’ reluctance to hire near retirement. While policy debates often emphasize older displaced workers, our findings highlight the need to also support displaced youth.

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