The Intergenerational Consequences of Unexpected Job Loss

This paper uses variation induced by mass layoffs and firm closings to explore the intergenerational effects of family income shocks. Previous studies have argued that mass layoffs and firm closings can be thought of as exogenous employment shocks. Using a Canadian panel of administrative data that follows over 100,000 father-child pairs from 1978 to 1999, and includes detailed information about the firms at which the father worked, we construct narrow treatment and control groups whose fathers had the same level of permanent income prior to 1982 when some of the fathers were displaced. We demonstrate that job loss leads to permanent reductions in family income and compare outcomes among individuals whose fathers experienced an employment shock to outcomes among individuals whose fathers did not. We find that children whose fathers were displaced have annual earnings that are about 10% lower than similar children whose fathers did not experience an employment shock. They are also more likely to receive unemployment insurance and social assistance. The estimates are driven by the experiences of children whose family income was at the bottom of the income distribution, and are robust to a number of specification checks.