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An Error Components Model of the Impact of Plant Closing on Earnings

Steve Berry, Peter Gottschalk and Doug Wissoker
The Review of Economics and Statistics
Vol. 70, No. 4 (Nov., 1988), pp. 701-707
Published by: MIT Press
DOI: 10.2307/1935837
Stable URL: http://www.jstor.org/stable/1935837
Page Count: 7
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An Error Components Model of the Impact of Plant Closing on Earnings
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Abstract

An error components model is used to estimate the impact of plant closings on the mean and the variance of log earnings with data from the Panel Study of Income Dynamics. The results of the estimation are used to compute the impact of displacement on the probability that the earnings of a displaced worker will fall below 10,000 per year. The empirical work shows that during the period of displacement mean earnings decline and the variance of earnings increases sharply. This leads to a sharp increase in the proportion of persons with earnings below 10,000. However, in the post-displacement period the mean increases and the variance decline back to their pre-displacement levels.

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