4 Do Initial Conditions Persist between Firms? An Analysis of Firm-Entry Cohort Effects and Job Losers Using Matched Employer-Employee Data. Introduction Economists have long been interested in how persistent the effects of short-term unexpected shocks in the labor market are on workers’ careers (., Okun 1973) | 2 ------- -------- Firm Differences in Human Resource Practices 4 Do Initial Conditions Persist between Firms An Analysis of Firm-Entry Cohort Effects and Job Losers Using Matched Employer-Employee Data Till von Wachter and Stefan Bender Introduction Economists have long been interested in how persistent the effects of short-term unexpected shocks in the labor market are on workers careers . Okun 1973 . Using newly available longitudinal data an increasing number of papers suggest that the starting conditions in the first year of a worker s job or labor market entry can indeed have long-term effects on earnings and career development . Oreopoulos von Wachter Heisz 2006 Oyer 2006 Kahn 2006 . For example Oreopoulos von Wachter and Heisz 2006 find that the effect of graduating college in a recession fades after ten years for the typical worker and has permanent negative effects for less-able graduates. While clearly a concern for policymakers and the public such lasting effects of entry conditions are also difficult to explain in the context of standard models of wage setting and career development. In particular they raise the question of whether wages persistently deviate from workers skills because of market frictions or wage contracts. This question has received particular attention in the context of cohort Till von Wachter is an assistant professor of economics at Columbia University and a faculty research fellow of the National Bureau of Economic Research. Stefan Bender is a senior researcher at the Institute for Employment Research. We would like to thank David Card Bob Gibbons Larry Katz and conference participants at the Comparative Analysis of Enterprise Data conference CAED 2006 in Chicago and the Conference on Analysis of Firms and Employees CAFE 2006 in Nuremberg for helpful suggestions. Ana Rute-Cardoso provided helpful comments. This chapter was written as part of the research project Discrepancies between Market and Firm Wages An Analysis of
