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Working Paper

Choosing a Control Group for Displaced Workers

The vast majority of studies on the earnings of displaced workers use a control group of continuously employed workers to examine the effects of initial displacements. This approach implies long-lived earnings reductions following displacement even if these effects are not persistent, overstating the losses relative to the true average treatment effect. This paper's approach isolates the impact of an average displacement without imposing continuous employment on the control group. In a comparison of the standard and alternative approaches using PSID data, the estimated long-run earnings losses fall dramatically from 25 percent to 5 percent. Model simulations reinforce these empirical findings.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Krolikowski, Pawel M. 2016. “Choosing a Control Group for Displaced Workers.” Federal Reserve Bank of Cleveland, Working Paper No. 16-05. https://doi.org/10.26509/frbc-wp-201605