Elsevier

The Journal of Socio-Economics

Volume 30, Issue 4, July–August 2001, Pages 343-352
The Journal of Socio-Economics

W/age bias in worker displacement: how industrial structure shapes the job loss and earnings decline of older American workers

https://doi.org/10.1016/S1053-5357(01)00104-4Get rights and content

Abstract

This paper examines age differences in patterns of worker displacement and employment and earnings changes of displaced workers. Data from the 1998 Displaced Worker Supplement (DWS) of the Current Population Survey (CPS) indicate that older displaced workers possessed higher weekly wages than did younger workers at the time of their displacement. Moreover, older displaced workers suffered greater amounts of earnings loss than did younger displaced workers. Older workers, more often than younger workers, were displaced from jobs in the goods-producing sector. We attribute this age and industry difference in displacement to the higher earnings premium of older workers in the goods producing sector relative to the earnings premium of older workers in the service-producing sector. The age bias against older displaced workers may be viewed as part of social structural changes in the economy that have reduced the wage premium of the more expensive age segment of the workforce within industries that may economically benefit the most.

Introduction

Two seemingly paradoxical economic conditions bedevil senior members of the US workforce. First, despite low unemployment, the job security enjoyed during the decades following World War II has steadily eroded since the early 1970s. Every year millions of workers are displaced. During the latest rounds of 1990s “downsizing,” employers relied on mergers, business process reengineering, new forms of management, and advanced information technologies to reduce the size of their workforces. Announcements of workforce reductions have recently occurred at or near record high numbers (Laabs, 1999). The highest rates of displacement have occurred among the older segments of the working population (Hipple, 1999). Second, although the US population is steadily aging, the proportion of older Americans in the workforce has declined Montgomery et al 1990, Barth et al 1993.

The tough economic times that many older workers have experienced seems to contradict what we might expect during times of economic expansion, low unemployment, and when the general population is growing older. It appears more logical that older workers would be prospering, retaining their jobs, and increasing their representation in the workforce. This article attempts to enlighten understanding of this contradiction by placing the displacement and reemployment of older workers in its structural context. Using data from the 1998 Displaced Worker Supplement (DWS) of the Current Population Survey (CPS), we analyze age differences in worker displacement.

We argue that on a structural level, displacement, specifically of older workers, economically benefits employers. The main benefit from the displacement of older more expensive workers is that firms may reduce labor costs more so than from the displacement of younger workers. As we will see, not all types of firms benefit equally from the displacement of older workers. Firms in the goods-producing sector may realize a greater labor cost reduction than firms in the service-producing sector. Thus, the displacement of older workers contributes to a fundamental alteration of the structure of employment earnings: it reduces the wage premium of older workers within goods-producing industries.

Section snippets

Previous explanations

Historically, two main types of explanations have addressed age differences in patterns of hiring and firing. The first argues that older workers are more often fired and less often hired than younger workers due to employer age discrimination (e.g., Perry et al 1996, Finklestein and Burke 1998, Warr 1994). The second explanation posits that differential skills and education of younger vis-à-vis older workers account for age difference in hiring and firing (e.g., Heywood et al 1999, Shapiro and

Data methodology

Data for this study comes from the 1998 Current Population Survey’s Biennial Displaced Worker Supplement. The Current Population Survey (CPS) is a national probability study conducted monthly on approximately 50,000 households. The CPS is the primary source of employment, income, and population characteristics in the United States. Biennially, the February CPS includes a supplement to gather data on displaced workers. The US Department of Labor defines displaced workers as, “persons who lost or

Results

Table 1 shows changes in weekly earnings from lost job to current job for all displaced workers currently employed and the two age cohorts (see the Appendix for data on those employed, unemployed, and not in the labor force). As expected older workers have higher weekly earnings than younger workers in both lost and current job. Although the overall sample experienced a decline of $4.85 in weekly earnings, this was not a difference that was statistically significant. However, for older workers

Conclusion

Displacement has deleterious effects on older workers. Other studies have indicated that older displaced workers experience longer spells of unemployment than do younger workers (Love & Torrence, 1989). Older workers may experience not only a loss in earnings but in assets (Chan and Stevens, 1999). Older workers are less likely to be hired in jobs that provide fringe benefits (Scott, Berger & Garen, 1995). As this study and other studies indicate, many displaced older workers experience

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