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From One Job to the Next: Worker Adjustment in a Changing Labor Market.

One Job to the Next: Worker Adjustment in a Changing Labor Market. By Adam Scitchik and Jeffrey Zomitsky. Kalamazoo, Nu, W.E. Upjohn Institute, 1989. 129 pp.

From 1981 through 1985, wrenching structural changes in the U. S. labor market resulted in the displacement of 10.8 million workers, with about one-half coming from the manufacturing sector. Some 5.1 million of the total had held their jobs for at least 3 years. Part of the price for the much heralded transformation of the economy from goods-production to services was paid by displaced workers. As Joseph Shumpeter saw long ago, market economies experience great difficulty in containing the destructive force of capitalism while simultaneously encouraging growth and development. Under certain conditions, the displacement of workers in dying industries may be an economically efficient" (although ethically painful) means of allowing the labor market to reach equilibrium.

What are the reemployment and earning outcomes of workers displaced by plant closings or mass layoffs through no fault of their own? Should public policy help promote movement of displaced workers from declining to growing industries? If so, what form should investments in training or education programs take? Drawing on the annual series of March "Work Experience Supplements" to the Current Population Survey from 1970 to 1985, and the January 1986 "Dislocated Worker Supplement," Adam Seitchik and Jeffrey Zomitsky tackle these thorny statistical questions and give policy prescriptions.

After a careful sensitivity analysis of the data (using three separate sample specifications), they show that displaced, full-time male workers, once reemployed, earn between 15 percent and 20 percent less than other workers with similar characteristics, even after controlling for differences in hours worked. Of those reemployed as of January 1986, about 30 percent were jobless for more than 27 weeks, while another 30 percent were jobless for fewer than 5 weeks. As would be expected, earnings losses were greatest for those displaced in 1985 and least for those displaced in 1981, although "it may still take up to 2 years to recoup 50 percent of the loss" (pp. 33-34). Arguing that comparisons between predisplacement and post-displacement earnings are "more intuitively appealing" (p. 75) if based on the relative rather than nominal earnings position of displaced workers, the authors show that the decline in earnings was sufficient in size to drop one-third of them down "at least one quartile in the wage and salary distribution" (p. 112). Thus, two-thirds appear to have been successful in finding comparable wage reemployment, a somewhat surprising result. In the first published analyses of the January 1986 data, Francis Horvath found that, for the 5.1 million dislocated workers with 3 years or more of seniority on their former jobs, "more than half of those reemployed earned as much or more in their new jobs as in their lost jobs." (See "The pulse of economic change: displaced workers of 1981-85, "Monthly Labor Review, June 1987.) Unlike Horvath, however, the authors did not exclude workers with fewer than 3 years of tenure from their statistical universe.

The key question for policymakers, according to Seitchik and Zomitsky, is whether to focus on policies promoting reemployment of displaced workers in growth sectors (with almost certain earning losses for some) or reemployment at comparable wages. In theory, a flexible labor market would facilitate the movement of workers from declining to growing sectors. However, about half of the displaced workers (while often changing specific industry or occupation) return to their old major industry and occupation groupings in order to minimize earnings losses. Clearly, there are significant skills mismatches between these, often high wage, workers and the job requirements in growing industries. "As a result, they tend not to pursue employment in growth sectors, and instead search for jobs in the industries and occupations from which they were laid off (p. 95). At the same time, many growth industries, especially in the services sector, are also producing lower paying jobs that have little or no educational qualifications.

In the most innovative section of their monograph, the authors constructed a probit maximum likelihood model to estimate the probabilities of three possible outcomes for displaced workers: (1) reemployment; (2) reemployment in a growth sector; and (3) reemployment in a comparable wage job. Unlike reemployment per se, the latter two outcomes have received little attention in prior research.

They found that the probability of outcomes (1) and (3) increases with educational attainment, findings generally in line with those recently made by Paul Swaim and Michael Prodgursky in "Do more-educated workers fare better following job displacement?" Monthly Labor Review, August 1989. Not surprisingly, Seitchik and Zomitsky also report that educational attainment has no statistically significant effect on the probability of outcome 2)-reemployment in a growth sector. Furthermore, "relative to service and white-collar workers, those from the manufacturing sector with blue-collar skills are, holding other factors constant, substantially less likely to enter a growth sector" (p. 99).

Perhaps the most important finding of the authors is that comparable-wage reemployment-outcome (3)-is especially problematic for less educated blue-collar workers displaced from higher wage jobs. This result is an important refinement of their earlier conclusion, drawn from aggregate data, that two-thirds of displaced workers are successful in obtaining comparable-wage reemployment. Policy prescriptions inevitably follow from this refinement. Thus, lower wage displaced workers are most likely to benefit from modest remediation and skills training programs like the 1988 Economic Displacement and Worker Adjustment Assistance Act, according to the authors, because they are better matched to lower paying skills needed in growth industries. Much larger investments in education and retraining, "well outside the bounds that taxpayers have thus far been willing to authorize" (p. 115), are needed to facilitate reemployment of higher wage displaced workers at comparable wages. Absent such expensive training, assert the authors, movement by these workers into growth industries will be inhibited by the prospect of substantial loss earnings.

It is not necessarily for labor economists to agree with all the policy prescriptions of Seitchik and Zomitsky to appreciate this thoughtful, rigorously researched monograph. The problems they address are as timely as ever, even though a consensus on the solutions still seems elusive. Robert Kramer Office of Technology and Survey Processing Bureau of Labor Statistics
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Author:Kramer, Robert
Publication:Monthly Labor Review
Article Type:Book Review
Date:Sep 1, 1990
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