Displacement Effects in Manufacturing

In the paper presented in this ZEW Research Seminar, the authors investigate the sources of wage losses from displacement in the manufacturing sector. Manufacturing establishments traditionally employed low- and high-wage workers in similar proportions and paid substantial wage premiums to both types of workers. Structural change has led to the disappearance of manufacturing jobs, particularly for low-wage workers. Decomposing displacement wage losses, they show that low-wage workers suffer particularly large losses in establishment premiums following displacement, whereas high-wage workers tend to fall down the match quality ladder. With ongoing structural change, losses in wages and establishment premiums have increased over time, especially for low-wage workers, in part because they are increasingly forced to switch to low-knowledge service jobs where establishment premiums are low.